Nov 142017
 
 November 14, 2017  Posted by at 10:15 am Finance Tagged with: , , , , , , , ,  11 Responses »
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Vincent van Gogh Laboureur dans un champ 1889

 

The Largest Transfer Of Wealth In Living Memory (OD)
How The American Dream Turned Into Greed And Inequality (WEF)
The Fed Destroyed Functioning American Democracy and Bankrupted the Nation (CH)
The Fatal Flaw Of Neoliberalism: It’s Bad Economics (Rodrik)
China Home Sales Fall by Most in Almost Three Years on Curbs (BBG)
Australia’s Whole Economy Is Built On China Buying Our Stuff (News.com.au)
Austerity, Not Brexit, Has Doomed The Tory Party (G.)
Saudi Retreat From U.S. Oil Market Cuts Exports to 30-Year Low (BBG)
Arab States Spent $130 Billion To Destroy Syria, Libya, Yemen (PressTV)
EU Countries Agree To Create A European Mega-Army (R.)
Fisheries Collapse On US West Coast: “It’s The Worst We’ve Seen” (SHTF)

 

 

Or, as yours truly phrased it 2 weeks ago: The Biggest Ponzi in Human History. But the writer makes a big mistake when she says “this will be passed on to the next generation via inheritance or transfer”. It won’t, because prices will plunge. What will be passed on is the debt.

The Largest Transfer Of Wealth In Living Memory (OD)

Last week, the Office for National Statistics (ONS) released new data tracking how wealth has evolved over time. On paper, the UK has indeed become much wealthier in recent decades. Net wealth has more than tripled since 1995, increasing by over £7 trillion. This is equivalent to an average increase of nearly £100,000 per person. Impressive stuff. But where has all this wealth come from, and who has it benefitted? Just over £5 trillion, or three quarters of the total increase, is accounted for by increase in the value of dwellings – another name for the UK housing stock. The Office for National Statistics explains that this is “largely due to increases in house prices rather than a change in the volume of dwellings.” This alone is not particularly surprising. We are forever told about the importance of ‘getting a foot on the property ladder’.

The housing market has long been viewed as a perennial source of wealth. But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. This year the ONS has separated out these two components for the first time, and the results are quite astounding. In just two decades the market value of land has quadrupled, increasing recorded wealth by over £4 trillion. The driving force behind rising house prices — and the UK’s growing wealth — has been rapidly escalating land prices. For those who own property, this has provided enormous benefits. According to the Resolution Foundation, homeowners born in the 1940s and 1950s gained an unearned windfall of £80,000 between 1993 and 2014 alone.

In the early 2000s, house price growth was so great that 17% of working-age adults earned more from their house than from their job. Last week The Times reported that during the past three months alone, baby boomers converted £850 million of housing wealth into cash using equity release products – the highest number since records began. A third used the money to buy cars, while more than a quarter used it to fund holidays. Others are choosing to buy more property: the Chartered Institute of Housing has described how the buy-to-let market is being fuelled by older households using their housing wealth to buy more property, renting it out to those who are unable to get a foot on the property ladder. And it is here that we find the dark side of the housing boom.

House prices are now on average nearly eight times that of incomes, more than double the figure of 20 years ago. It’s unlikely that house prices will be able to outpace incomes at the same rate for the next 20 years. The past few decades have spawned a one-off transfer of wealth that is unlikely to be repeated. While the main beneficiaries of this have been the older generations, eventually this will be passed on to the next generation via inheritance or transfer. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender. The ultimate result is not just a growing intergenerational divide, but an entrenched class divide between those who own property (or have a claim to it), and those who do not.

Read more …

The dream is dead.

How The American Dream Turned Into Greed And Inequality (WEF)

[..] the idea that every American has an equal opportunity to move up in life is false. Social mobility has declined over the past decades, median wages have stagnated and today’s young generation is the first in modern history expected to be poorer than their parents. The lottery of life – the postcode where you were born – can account for up to two thirds of the wealth an individual generates.The growing gap between the rich and the poor, the old and the young, has been largely ignored by policymakers and investors until the recent rise of anti-establishment votes, including those for Brexit in the UK and for President Trump in the US. This is a mistake. Inequality is much more than a side-effect of free market capitalism.

It is a symptom of policy negligence, where for decades, credit and monetary stimulus shortcuts too easily substituted for structural reform, investment and economic strategy. Capitalism has been incredibly successful at boosting wealth, but it has failed at redistributing it. Today, without a push to redistribute wealth and opportunity, our model of capitalism and democracy may face self-destruction. The widening of inequality has deep historical roots. Keynes’ interventionist policies worked well during the post-war recovery, as fiscal stimulus for the reconstruction boosted demand for US goods from Europe and Japan. But soon the stimulus faded. The U.S. found itself with declining growth and rising inflation at a time when it was mired in the Cold War and Vietnam conflicts. The baby boomer generation demanded higher living standards.

The response was the Nixon shock in 1971: a set of policies which moved away from the gold standard, initiating the era of fiat money and free credit. Credit was the answer to declining growth and rising inequality: if you couldn’t afford university, a new house or a new car, Uncle Sam would lend you the key to the American Dream in the form of that extra loan you needed. Over the following decades, state subsidies to private credit became popular, spreading to the U.K. and Europe. It was the start of debt-based democracies. Private debt outgrew GDP four times in the US and Europe over the following decades up to the 2008 financial crisis, accompanied by the deregulation of financial markets and of banks. The rest is history: nine long years after the crisis, our economies are still healing from excess debt, and regulators are still working on strengthening our financial system. Inequality, however, has deepened even further. Has capitalism failed?

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Very good from Chris Hamilton.

The Fed Destroyed Functioning American Democracy and Bankrupted the Nation (CH)

Against the adamant wishes of the constitutions framers, in 1913 the Federal Reserve System was Congressionally created. According to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.” Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest. A quick overview; monetary policy is the Federal Reserves actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States. The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy.

Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States. I suggest what truly happened in 1913 was that Congress willingly abdicated a portion of its responsibilities, and through the Federal Reserve, began a process that would undermine the functioning American democracy. How, you ask? The Fed, believing the free-market to be “imperfect” (aka; wrong) believed it should control and set interest rates, determine full employment, determine asset prices; not the “free market”. And here’s what happened:

• From 1913 to 1971, an increase of $400 billion in federal debt cost $35 billion in additional annual interest payments.
• From 1971 to 1981, an increase of $600 billion in federal debt cost $108 billion in additional annual interest payments.
• From 1981 to 1997, an increase of $4.4 trillion cost $224 billion in additional annual interest payments.
• From 1997 to 2017, an increase of $15.2 trillion cost “just” $132 billion in additional annual interest payments.

[..] As the chart below highlights, since the creation of the Federal Reserve the growth of debt (relative to growth of economic activity) has gone to levels never dreamed of by the founding fathers. In particular, the systemic surges in debt since 1981 are unlike anything ever seen prior in American history. Although the peak of debt to GDP seen in WWII may have been higher (changes in GDP calculations mean current GDP levels are likely significantly overstating economic activity), the duration and reliance upon debt was entirely tied to the war. Upon the end of the war, the economy did not rely on debt for further growth and total debt fell.

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Perhaps the biggest mystery is why the (formerly) left got so involved with it.

The Fatal Flaw Of Neoliberalism: It’s Bad Economics (Rodrik)

We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal’s Manifesto. It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.

The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments, neither of which Peters’s article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle. The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today’s world.

That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise? Much of our contemporary policy discussion remains infused with principles supposedly grounded in the concept of homo economicus, the perfectly rational human being, found in many economic theories, who always pursues his own self-interest.

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Wonder what Xi is thinking.

China Home Sales Fall by Most in Almost Three Years on Curbs (BBG)

China’s new home sales fell by the most in almost three years last month, adding to signs of cooling as local governments keep rolling out curbs to limit price increases. Sales by value dropped 3.4% from a year earlier to 909 billion yuan ($137 billion), according to Bloomberg calculations based on data released Tuesday by the National Bureau of Statistics. That was the biggest year-on-year decline since November 2014. Signs of a property slowdown, including price rises in fewer cities in September, may concern policy makers who want to avoid any sharp economic deceleration. The government is grappling with fueling growth while containing runaway home prices.

President Xi Jinping last month renewed a yearlong call that homes are built “to be inhabited’’ and not for speculation, in his speech at the twice-a-decade Communist Party Congress, inking the language in one of the nation’s top policy frameworks. Investment in real estate development slowed, growing 5.6% last month from a year earlier, down from a 9.2% increase in September, according to Bloomberg calculations. A Bloomberg Intelligence index of Chinese real-estate owners and developers slipped 0.3%. It’s up 89% this year. The data came amid signs of the government easing financing for property developers and as economic releases for October pointed to a moderating economy.

Read more …

Excellent takedown of Australia’s dying economic model.

Australia’s Whole Economy Is Built On China Buying Our Stuff

Australia’s Whole Economy Is Built On China Buying Our Stuff (News.com.au)

I recently watched the federal Treasurer Scott Morrison proudly proclaim that Australia was in “surprisingly good shape”. Indeed, Australia has just snatched the world record from the Netherlands, achieving its 104th quarter of growth without a recession, making this achievement the longest streak for any OECD country since 1970. I was pretty shocked at the complacency, because after 26 years of economic expansion, the country has very little to show for it. For over a quarter of a century our economy mostly grew because of dumb luck. Luck because our country is relatively large and abundant in natural resources, resources that have been in huge demand from a close neighbour — China. Out of all OECD nations, Australia is the most dependent on China by a huge margin, according to the IMF.

Over one-third of all merchandise exports from this country go to China including all physical products and things we dig out of the ground. Outside of the OECD, Australia ranks just after the Democratic Republic of the Congo, Gambia and the Lao People’s Democratic Republic and just before the Central African Republic, Iran and Liberia. Does anything sound a bit funny about that? As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble. Unfortunately for Australia, that “lucky” free ride is just about to end. Societe Generale’s China economist Wei Yao recently said: “Chinese banks are looking down the barrel of a staggering $1.7 trillion worth of losses”. Hayman Capital’s Kyle Bass calls China a “$34 trillion experiment” which is “exploding”, where Chinese bank losses “could exceed 400% of the US banking losses incurred during the subprime crisis”.

A hard landing for China is a catastrophic landing for Australia, with horrific consequences to this country’s delusions of economic grandeur. The initial rally in commodities at the beginning of 2016 was caused by a bet that more economic stimulus and industrial reform in China would lead to a spike in demand for commodities used in construction. That bet rapidly turned into full-blown mania as Chinese investors, starved of opportunity and restricted by government clamp downs in equities, piled into commodities markets. This saw, in April of 2016, enough cotton trading in a single day to make a pair of jeans for everyone on the planet, and enough soybeans for 56 billion servings of tofu. Market turnover on the three Chinese exchanges jumped from a daily average of about $78 billion in February to a peak of $261 billion on April 22, 2016 — exceeding the GDP of Ireland.

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It’s the people.

Austerity, Not Brexit, Has Doomed The Tory Party (G.)

What is destroying the Conservatives is not outside forces, nor the cack-handed pricking of a gusher of ministerial ineptitude. No, the fundamental cause is their own economic strategy of austerity. Of cutting taxes for the wealthy, while cutting public services and social security for the rest. Of rewarding the owners of capital, while punishing those who rely on their labour. Of claiming to have fixed the economy, while tanking voters’ living standards. Austerity is now the thudding drumbeat behind every ministerial misstep, from a family holiday with the Netanyahus to a fauxpology over Nazanin Zaghari-Ratcliffe. It is what unites these individual Westminster outrages into an outline of a ruling party no longer fit for office. By forcing an arbitrary limit on already severely constrained Whitehall and town hall budgets, it renders meaningful government close to impossible.

This is what makes next week’s autumn budget from Philip Hammond so crucial. If the Tories wish to regain any credibility, they will have to ditch the very strategy that defines them. In the days immediately following this summer’s general election, I asked a number of leading figures in Labour how they managed to pull off one of the biggest surprises in postwar political history and rob May of her majority. Their answers all circled back to one thing: austerity fatigue. After seven straight years of seeing their kids’ school classes get bigger and their parents’ hospital waits grow longer, voters were ready for an anti-austerity party leader such as Jeremy Corbyn. Austerity has done more than tear up the public realm; it has imposed private misery on millions of households.

The age of austerity has been the era of the foodbank, the zero-hours contract, the privately rented slum. Unless there is a miracle, the economists at the Resolution Foundation project that the 2010s will be the worst decade for wage growth since the Napoleonic wars of the early 1800s.

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But but.. the petrodollar!

Saudi Retreat From U.S. Oil Market Cuts Exports to 30-Year Low (BBG)

For a generation, the huge, whitewashed storage tanks at America’s largest oil refinery in Port Arthur, Texas, have stored almost nothing but Saudi crude. The plant is owned the Saudi Arabia’s state-run oil company, Aramco, and since it first bought a stake in 1988, the Motiva refinery guaranteed the kingdom a strategic foothold in the world’s largest energy market. The tankers carrying millions of barrels a month of Arab Light crude from the Saudi export terminals to Port Arthur were testament to the strength of the energy and political ties binding Riyadh and Washington. All of a sudden, there are very few Saudi ships arriving in Texas. Since July, Aramco has constricted supply, attempting to drain the crude storage tanks at Motiva – and many others across America -part of a plan to lift oil prices, even at the cost of sacrificing its once prized U.S.

While Motiva is most affected, the rest of the U.S. oil refining system, from El Segundo in California to Lake Lake Charles in Louisiana, has also taken a hit. The result: Saudi crude exports into America fell to a 30-year low last month. “The drop is huge,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. “It’s not just that Saudi exports are low, but they have been low for several months.” At a stroke, the freedom from Saudi oil that’s been a rhetorical aspiration for generations of American politicians, from Jimmy Carter to George W. Bush, is within reach – even if it’s largely the choice of supplier rather than the customer. The U.S. imported just 525,000 barrels a day of Saudi crude in October, the lowest since May 1987 and down from 1.5 million barrels a day a decade ago, according to Bloomberg News calculations based on custom data.

The combination of falling Saudi oil exports into the U.S. last year, cheap crude and higher exports of American weapons had already turned upside-down the trade relationship between the two countries. Last year, the U.S. enjoyed its first trade surplus with Saudi Arabia since 1998 — only the third in 30 years, according to data from the U.S. Census Bureau. The sharper cuts in oil exports since the summer will likely amplify that trend.

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“..the United Arab Emirates had planned a military invasion of Qatar with thousands of US-trained mercenaries [..] but it was never carried out as Washington did not give the green light to it..”

Arab States Spent $130 Billion To Destroy Syria, Libya, Yemen (PressTV)

Algerian Prime Minister Ahmed Ouyahia says some regional Arab states have spent $130 billion to obliterate Syria, Libya and Yemen. Ouyahia made the remarks on Saturday at a time when much of the Middle East and North Africa is in turmoil, grappling with different crises, ranging from terrorism and insecurity to political uncertainty and foreign interference. Algeria maintains that regional states should settle their differences through dialog and that foreign meddling is to their detriment. Syria has been gripped by foreign-sponsored militancy since 2011. Takfirism, which is a trademark of many terrorist groups operating in Syria, is largely influenced by Wahhabism, the radical ideology dominating Saudi Arabia.

Libya has further been struggling with violence and political uncertainty since the country’s former ruler Muammar Gaddafi was deposed in 2011 and later killed in the wake of a US-led NATO military intervention. Daesh has been taking advantage of the chaos in Libya to increase its presence there. Yemen has also witnessed a deadly Saudi war since March 2015 which has led to a humanitarian crisis. Last Month, Qatar’s former deputy prime minister Abdullah bin Hamad al-Attiyah said the United Arab Emirates had planned a military invasion of Qatar with thousands of US-trained mercenaries. The UAE plan for the military action was prepared before the ongoing Qatar rift, but it was never carried out as Washington did not give the green light to it, he noted. In late April, reports said the UAE was quietly expanding its military presence into Africa and the Middle East, namely in Eritrea and Yemen.

Read more …

As I wrote yesterday, insanity.

EU Countries Agree To Create A European Mega-Army (R.)

France and Germany edged toward achieving a 70-year-old ambition to integrate European defenses on Monday, signing a pact with 21 other EU governments to fund, develop and deploy armed forces after Britain’s decision to quit the bloc. First proposed in the 1950s and long resisted by Britain, European defense planning, operations and weapons development now stands its best chance in years as London steps aside and the United States pushes Europe to pay more for its security. Foreign and defense ministers gathered at a signing ceremony in Brussels to represent 23 EU governments joining the pact, paving the way for EU leaders to sign it in December. Those governments will for the first time legally bind themselves into joint projects as well as pledging to increase defense spending and contribute to rapid deployments.

“Today we are taking a historic step,” Germany’s Foreign Minister Sigmar Gabriel told reporters. “We are agreeing on the future cooperation on security and defense issues … it’s really a milestone in European development,” he said. The pact includes all EU governments except Britain, which is leaving the bloc, Denmark, which has opted out of defense matters, Ireland, Portugal and Malta. Traditionally neutral Austria was a late addition to the pact. Paris originally wanted a vanguard of EU countries to bring money and assets to French-led military missions and projects, while Berlin has sought to be more inclusive, which could reduce effectiveness. Its backers say that if successful, the formal club of 23 members will give the European Union a more coherent role in tackling international crises and end the kind of shortcomings seen in Libya in 2011, when European allies relied on the United States for air power and munitions.

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There are a few things we need to stop doing, urgently.

Fisheries Collapse On US West Coast: “It’s The Worst We’ve Seen” (SHTF)

The Gulf of Alaska cod populations appears to have taken a nose-dive. Scientists are shocked at the collapse and starving fish, making this the “worst they’ve ever seen.” “They [Alaskan cod] get weak and die or get eaten by something else,” said NOAA’s Steve Barbeaux. The 2017 trawl net survey found the lowest numbers of cod on record forcing scientists to try to unravel what happened. A lot of the cod hatched in 2012 appeared to survive, but by 2017, those fish were largely gone for the surveys, which also found scant evidence of fish born in subsequent years. Many of the cod that have come on board trawlers are “long skinny fish” according to Brent Paine, executive director of United Catcher Boats. “This is a big deal,” Paine said. “We just don’t see these (cod) year classes disappear from one year to the next.”

The decline is expected to substantially reduce the gulf cod harvests that in recent years have been worth — before processing — more than $50 million to Northwest and Alaska fishermen who catch them with nets, pot traps, and baited hooks set along the sea bottom. Barbeaux says the warm water, which has spread to depths of more than 1,000 feet, hit the cod like a kind of a double-whammy. Higher temperatures sped up the rate at which young cod burned calories while reducing the food available for the cod to consume. And many are blaming “climate change” for the effects on the fish, although scientists aren’t directly correlating the two events. “They get weak and die or get eaten by something else,” said Barbeaux, who in October presented preliminary survey findings to scientists and industry officials at an Anchorage meeting of the North Pacific Fishery Management Council.

Read more …

Aug 162017
 
 August 16, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Fred Stein Hydrant, New York 1947

 

The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)
After 100 Months of Buying The Dips – Peak Crazy (Stockman)
China Has Got To Fix Its Debt Problem, IMF Says (CNBC)
China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)
UK Risks ‘Losing Its Place As Property-Owning Democracy’
The New American Dream: Rent Your Home From A Hedge Fund (Black)
Trump Signs Order to Speed Up Public-Works Permits (BBG)
German Challenge To ECB QE Asset Buys Sent To European Court (R.)
Washington’s Long War on Syria (Ren.)
Fish Confusing Plastic Debris In Ocean For Food (G.)

 

 

Debt leads to war.

The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)

Totally irresponsible policies by governments and central banks have created the most dangerous crisis that the world has ever experienced. Risk doesn’t arise quickly as the result of a single action or event. No, risk of the magnitude that the world is experiencing today is the result of many years or decades of economic mismanagement. Cycles are normal in nature and in the world economy. And cycles that are the result of the laws of nature normally play out in an orderly fashion without extreme tops or bottoms. “Just take the seasons. They go from summer to autumn, winter and spring, with soft transitions that seldom involve drama or catastrophe. Economic cycles would be the same if they were allowed to happen naturally without the interference of governments.

But power corrupts and throughout history leaders have always hung on to power by interfering with the normal business cycle. This involves anything from reducing the precious metals content of money from 100% to nothing, printing money, leveraging credit, manipulating interest rates, taking total taxes from at least 50% + today from nothing 100 years ago etc, etc. Governments will always fail when they believe that they are gods. But not only governments believe they perform godly tasks but also hubristic investment bankers like the ex-CEO of Goldman Sachs who proclaimed that the bank was doing God’s work. It must be remembered that Goldman, like most other banks, would have gone under if they and JP Morgan hadn’t instructed the Fed to save them by printing and guaranteeing $25 trillion. Or maybe that was God’s hand too?

We now have unmanageable risks at many levels – politically, geopolitically, economically and financially. This is a RISK ON situation that is extremely dangerous and will have very grave consequences. There are numerous risks that can all cause the collapse of the world economy and they all have equal relevance. However, the political situation in the USA is very dangerous for the world. This the biggest economy in the world, albeit bankrupt with debt growing exponentially and real deficits every year since 1960. Before the dollar has collapsed, the US will still be seen as a powerful nation, although a massive economic decline will soon weaken the country burdened by debt at all levels, government, state, and private.

Read more …

“There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day.”

After 100 Months of Buying The Dips – Peak Crazy (Stockman)

Just call it Peak Crazy and move on. There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day. The fact that this is happening is a measure of how impaired capital markets have become as a result of massive central bank intrusion. The robo-machines and day traders keep buying the dips because that has “worked” for the last 100 months. There is nothing more to it than residual momentum. Under a regime of honest money and price discovery, the stock market discounts the future. There is no plausible future from here that’s worth 24 times S&P 500 value or 96 times the Russell 2000. Surely the year-ahead earnings boom that Wall Street’s artists have penciled in is not in the slightest bit plausible. With 84% of the S&P 500 reporting Q2 results, LTM earnings are still 1.3% below where they were in September 2014.

Nothing has happened to corporate earnings in the last three years except deflation in the energy, materials and industrial sectors. After hitting $106 per share in September 2014, the global deflation cycle brought them to a low point of $86.44 per share in March 2016 in response to low $30s oil prices. The latter has since recovered to the $50 dollar zone – bringing S&P 500 earnings back to $104.61 during the current quarter. The question remains: How does an aging business cycle and immense global headwinds justify the expectation of a red hot earnings breakout during the next 18 months? Yet that’s what’s happening on Wall Street. We’ve hit nearly $133 per share of GAAP earnings (and $145 of the ex-items variety) for the LTM period ending in December 2018, meaning a prospective surge of 27%.

[..] In this machine driven market, any of these indices could resume their mad momentum based climb. But negative divergences are breaking out everywhere, and that’s usually a sign that the end is near. Margins on debt has again reached an all-time high of $550 billion. The chart below leaves little doubt as to what comes next. After the 2000 peak, margin debt collapsed by 50% as stocks were violently liquidated to meet margin calls. All this while in 2008 the shrinkage of margin debt was even larger – nearly 60%. This time, however, a similar shrinkage would cause a $325 billion decline in margin balances. That’s a lot of stocks on a fire sale.

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“..outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year..”

China Has Got To Fix Its Debt Problem, IMF Says (CNBC)

China’s economy is looking good enough that the IMF is raising its outlook, but the organization is doing so with a strong warning over growing debt in the world’s second-largest economy. The IMF issued its annual review of China on Tuesday, and has revised its growth forecast to 6.7% for 2017, which was up from 6.2%. The organization also said it expects China to average 6.4% growth between now and 2021, versus its previous estimate of 6%. Still, the organization warned that things were far from peachy. “The growth outlook has been revised up reflecting strong momentum, a commitment to growth targets, and a recovering global economy,” the IMF said. “But this comes at the cost of further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term.”

What Beijing needs to do is to seize its current strong growth momentum “to accelerate needed reforms and focus more on the quality and sustainability of growth,” said the report. At the top of that list is working to tackle the debt issue: Going forward, the IMF sees China’s non-financial sector debt to hit nearly 300% of GDP by 2022, up from around 240% last year. Debt-fueled growth, the IMF warned, is a short-term solution that isn’t sustainable in the long run unless China tackles deeper structural issues. Experts have been sounding the alarm bell over this issue for years, urging China to rein in its old model of opening credit lines to fuel investment and spending and to find a better balance between supporting growth and controlling risks to the economy.

Chinese banks extended 825.5 billion yuan (about $123.44 billion) in new loans in July, down from 1.54 trillion yuan in June. Outstanding total social financing — a broad measure of credit and liquidity — came in at 1.22 trillion yuan last month versus 1.78 trillion yuan in June. Part of the drop is seasonal, and it’s “masking an uptick in underlying credit growth,” wrote China economist Julian Evans-Pritchard at Capital Economics. A better way to look at credit creation is to gauge growth in outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year.

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As long as things look good for the Party Congress, who cares?

China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)

Growth in China’s broad money supply slipped to a fresh record low, signaling authorities aren’t letting up in their drive to curb excess borrowing and safeguard the financial system. Aggregate financing stood at 1.22 trillion yuan ($182.7 billion) in July, the People’s Bank of China said on Tuesday, compared with an estimated 1 trillion yuan in a Bloomberg survey. New yuan loans stood at 825.5 billion yuan, versus an projected 800 billion yuan. Broad M2 money supply increased 9.2%, while economists forecast a 9.5% increase . Authorities pushing to cut excess leverage have squeezed the massive shadow bank sector, which shrank for the first time in nine months. Yet with aggregate financing remaining robust and bond issuance rebounding, the central bank is still providing ample support for businesses to avoid derailing growth ahead of a key Communist Party congress this fall.

Slower M2 growth will become a “new normal,” the PBOC said Friday in its quarterly monetary policy report. “The relevance of M2 growth to the economy and its predictability has reduced, and its changes should not be over-interpreted.” “The deleveraging campaign is still focused on the financial sector, which leads to the slowdown in M2 growth,” said Yao Shaohua at ABCI Securities in Hong Kong. “Bank support for the real economy remains solid.” “The easing in credit conditions in July was probably part of the concerted stability play ahead of the Party Congress, thus more likely to be temporary,” said Yao Wei, chief China economist at Societe Generale in Paris. “We’re still looking for more deleveraging measures and tougher regulations afterwards.”

“The divergence between M2 growth and aggregate financing reflects that the PBOC is trying to balance cutting leverage while ensuring enough funds to support the real economy,” said Wen Bin at China Minsheng Banking in Beijing. “Single-digit M2 growth is likely to stretch until year-end. And with ample support from the central bank’s credit supply, the drag effect of financial deleveraging on the economic expansion will be limited.” “Banks are still creating credit, and this credit is important to support economic growth,” said Iris Pang, an analyst at ING in Hong Kong. “If liquidity is too tight, or credit growth shrinks, the whole deleveraging reform will run into the risk that there will be too many defaults and the whole banking system will be shaken up.”

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“..first-time buyer registrations drop by almost 20% on the year..”

UK Risks ‘Losing Its Place As Property-Owning Democracy’

The UK risks losing its place as a property-owning democracy if house prices continue to rise, according to the boss of the UK’s largest independent estate agent. Paul Smith, chief executive of haart, said that “unaffordability is reaching crisis point” and urged the Government to stop “excessive profiteering” at the expense of aspiring home owners. The call comes as official figures showed that the price of the average house in the UK increased by £10,000 last year to £223,000. Property values increased by 0.8% between May and June according to joint figures from the Office for National Statistics, Land Registry and other bodies. In the year to June average prices were up 4.9%, down marginally from 5% growth in the year to May.

The report released on Tuesday said the annual growth rate had slowed since mid-2016 but has remained steady at about 5% this year so far. “House prices continued to rally with unflinching determination once again in June despite the ongoing economic uncertainty,” Mr Smith said. “However this means that the average UK buyer now has to fork out an extra £10,000 more to own a home than the same time last year. “Along with consumer price hikes and falling wage growth, unaffordability is reaching a crisis point. This is creating real impact on the ground as we see first-time buyer registrations drop by almost 20% on the year across our branches.”

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“..if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.”

The New American Dream: Rent Your Home From A Hedge Fund (Black)

About a month ago I joined the Board of Directors of a publicly-traded company that invests in US real estate. The position brings a lot of insight into what’s happening in the US housing market. And from what I’m seeing, the transformation that’s taking place today is extraordinary. Buying and renting out single-family homes has long been the mainstay investment of small, independent, individual investors. The big banks and hedge funds pretty much monopolize everything else. They own the stock market. They own the bond market. They own all the commercial real estate. They even own the farmland. Single-family homes were one of the last bastions of investment freedom for the little guy. (Real estate is how I got my own start in business and investing so many years ago; I was a 21-year-old Army lieutenant fresh out of the academy when I bought my first rental property.)

But all that’s changing now. Last week a huge merger was announced between Invitation Homes (owned by private equity giant Blackstone Group) and Starwood Waypoint Homes (owned by real estate giant Starwood Capital). If the deal goes through, the combined entity would be the largest owner of single-family homes in the United States with a portfolio worth over $20 billion. And this is only the latest merger in an ongoing trend. Three years ago, for example, American Homes 4 Rent bought Beazer Pre-Owned Rental Homes, creating another enormous player. A few months later, Starwood Waypoint bought Colony American Homes. And of course, Blackstone was one of the first institutional investors to start buying distressed homes, forking over around $10 billion on houses since the Great Financial Crisis.

[..] medium-sized funds are buying up all the little guys. And mega-funds like Blackstone are buying up all the medium-sized funds. This means there’s essentially an ‘arms race’ building among the world’s biggest funds to control the market, squeezing small, individual investors out of the housing market. [..] the average guy isn’t making any more money, or able to save anything… all while home prices soar to record levels as major funds gobble up the supply. This means that the new reality in America, especially for young people, is that if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.

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Prolonging the emergency with America’s own bridges to nowhere.

Trump Signs Order to Speed Up Public-Works Permits (BBG)

President Donald Trump signed an executive order Tuesday that’s designed to streamline the approval process for building roads, bridges and other infrastructure by establishing “one federal decision’’ for major projects and setting an average two-year goal for permitting. “This over-regulated permitting process is a massive self-inflicted wound on our country,” Trump said in a press conference at Trump Tower in New York. “It’s disgraceful.” Among other things, the president’s order will rescind a previous decree signed by former President Barack Obama that required federal agencies to account for flood risk and climate change when paying for roads, bridges or other structures.

It also allows the Office of Management and Budget to establish goals for environmental reviews and permitting of infrastructure projects and then track their progress – with automatic elevation to senior agency officials when deadlines are missed or extended, according to the order. The order calls for tracking the time and costs of conducting environmental reviews and making permitting decisions, and it allows the budget office to consider penalties for agencies that fail to meet established milestones. Critics say there’s danger in streamlining the reviews. “This is yet another outrageous example of Trump’s insistence on putting corporate interests ahead of people’s health and safety,” said Alex Taurel, deputy legislative director with the League of Conservation Voters, a political advocacy group.

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Way too late.

German Challenge To ECB QE Asset Buys Sent To European Court (R.)

The European Central Bank may be violating laws on monetary financing in its €2.3 trillion ($2.7 trillion) asset purchase programme, Germany’s constitutional court said on Tuesday, and it asked Europe’s top court to make a ruling. In the biggest challenge yet to the ECB’s unprecedented effort to revive growth, the court said bond buys under the scheme may go beyond the bank’s mandate and inhibit euro zone members’ activities. “Significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank, thus encroaching upon the competences of the Member States,” the court said. It said it would ask the European Court of Justice to review the programme.

The ECB acted swiftly to defend the scheme. “The extended asset purchase programme is in our opinion fully within our mandate,” it said in a statement. “That is ultimately for the European Court of Justice to assess.” It said the €60 billion per month asset buys would continue as normal. The European court has already backed the ECB’s more contentious emergency bond purchase scheme known as Outright Monetary Transactions or OMT with only relatively minor limitations, suggesting that the challenge – lodged by several academics and politicians – may face an uphill battle. The decision to pass the issue over to the ECJ means any final ruling will come either after the bond purchases end or near the end of the scheme, which has already been running for over two years and is expected to be wound down next year.

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“The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.”

Washington’s Long War on Syria (Ren.)

From Syria, to Iraq, Iran to Libya, our understandings of the long-wars in the Middle-East as moral, humanitarian interventions designed to democratise and civilise are the result of a carefully crafted propaganda campaign waged by the US and its allies. Each of these uprisings were launched by US proxies, designed to destabilize the regions, justifying regime change that suit the economic interests of its investors, banks and corporations, captured comprehensively in a new book by Canadian author and analyst, Stephen Gowans, Washington’s Long War on Syria. You might be surprised to know that both the Libyan, Syrian and Iraqi government, led by Muammar Gaddafi, Hafez Al Assad, (succeeded by Bashaar Al Assaad) and Sadaam Hussein respectively, were socialist governments. Or Ba’ath Arab Socialist governments, to be precise.

Ba’ath Arab Socialism can be summed up in their constitutions supporting the values of: ‘freedom of the Arab world, freedom from foreign powers and freedom of socialism’. Its doctrine was supported in Libya, as it was in Iraq and Syria. Of course, particularly in Hussein’s case, we cannot claim that these governments were without their problems. Ethnic cleansing is not to be overlooked, but condemned on the strongest grounds. But of course these were not the reasons the US and its allies decided to get into it. In the case of Iraq, it had combined its oil wealth with public ownership of the economy, leading to what is known as ‘The Golden Age’, where, according to a State Department Official: “Schools, universities, hospitals, factories, museums and theatres proliferated employment so universal, a labour shortage developed.”

When the Ba’ath Arab Socialists were driven from power in Iraq, the US installed military dictator, Paul El Briener who set about a ‘de-Ba’athification’ of the government, expelling every member of the Ba’ath Arab Socialist party and imposed a constitution forbidding any secular Arab leader from ever holding office in Iraq again. The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.” Gadaffi would soon be removed by Islamists, backed by NATO forces after Western oil companies agitated for his removal because he was “driving a hard bargain”. Canadian paramilitary forces even quipped that they were “al-Qaeda’s air-force”.

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And then we eat it. Carbon will kill us yet.

Fish Confusing Plastic Debris In Ocean For Food (G.)

Fish may be actively seeking out plastic debris in the oceans as the tiny pieces appear to smell similar to their natural prey, new research suggests. The fish confuse plastic for an edible substance because microplastics in the oceans pick up a covering of biological material, such as algae, that mimics the smell of food, according to the study published on Wednesday in the journal Proceedings of the Royal Society B. Scientists presented schools of wild-caught anchovies with plastic debris taken from the oceans, and with clean pieces of plastic that had never been in the ocean. The anchovies responded to the odours of the ocean debris in the same way as they do to the odours of the food they seek. The scientists said this was the first behavioural evidence that the chemical signature of plastic debris was attractive to a marine organism, and reinforces other work suggesting the odour could be significant.

The finding demonstrates an additional danger of plastic in the oceans, as it suggests that fish are not just ingesting the tiny pieces by accident, but actively seeking them out. Matthew Savoca, of the National Oceanic and Atmospheric Administration and lead author of the study, told the Guardian: “When plastic floats at sea its surface gets colonised by algae within days or weeks, a process known as biofouling. Previous research has shown that this algae produces and emits DMS, an algal based compound that certain marine animals use to find food. [The research shows] plastic may be more deceptive to fish than previously thought. If plastic both looks and smells like food, it is more difficult for animals like fish to distinguish it as not food.”

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Jun 222015
 
 June 22, 2015  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Unknown Dutch Gap, Virginia. Picket station of Colored troops 1864

Five Horsemen Of The Euro’s Future (Politico)
The Three Victories Of The Greek Government (Jacques Sapir)
Greece and Germany Agree the Euro Can’t Work (Crook)
The Euro Was Doomed From The Start (Norman Lamont)
If Greece Defaults, Europe’s Taxpayers Lose (Bloomberg)
Why On Earth Is Greece In The EU? (Angelos)
EU Welcomes 11th-Hour Greek Proposals In ‘Forceps Delivery’ (Reuters)
EU Commission Gives Guarded Welcome To Greek Plan Before Talks Bloomberg)
Greece Creditors Aim To Strike Deal To Include 6-Month Extension (Guardian)
Pro-Greek Demos In Brussels, Amsterdam Before Crunch Summit (AFP)
The Flash-Crash Trader’s Kafkaesque Nightmare (Bloomberg)
China Regulator Official Fired After Husband Suspected of Illegal Trading (WSJ)
Australian Housing Market Facing ‘Bloodbath’ Collapse: Economists (SMH)
Canada’s Giant Pension Funds Are The New Masters Of The Universe (Telegraph)
EU Extends Economic Sanctions Against Russia For 6 Months (RT)
Ayn Rand Killed The American Dream (Mathieu Ricard)
Behind the Scenes With the Pope’s Secret Science Committee (Bloomberg)
UK Scientific Model Flags Risk Of Civilisation’s Collapse By 2040 (Nafeez Ahmed)

What a list of incompetent power hungry doofuses.

Five Horsemen Of The Euro’s Future (Politico)

The threat of an imminent Greek exit from the euro may be the talk of Brussels, but the EU is unveiling bold proposals this week to deepen political and financial integration inside the eurozone. A so-called “five presidents’ report” obtained by POLITICO includes calls for a eurozone finance minister and stricter controls over the budgets of the 19 countries, including Greece, that use the single currency. The glossy 24-page document — entitled “Completing Europe’s Monetary and Economic Union” — will be published on Monday. It’s to be discussed at the EU summit that begins Thursday in Brussels. Commission President Jean-Claude Juncker drafted the report with European Council chief Donald Tusk; Eurogroup head Jeroen Dijsselbloem; Mario Draghi, president of the ECB; and European Parliament President Martin Schulz.

Coming ahead of an emergency EU summit on Greece Monday night in Brussels, a report on the future of the eurozone may seem ill-timed. But several governments, including Berlin, are more open now than ever to at least discuss steps toward deeper integration proposed by the “five presidents,” seeing it as a signal of reassurance to financial markets that the euro will endure any outcome on Greece. The proposals mostly echo calls by Germany and other rich northern eurozone countries to enforce spending rules across the eurozone. It won’t go down well in Greece or the poorer southern rim states, which want more “solidarity” within the eurozone — in other words, financial support in times of trouble.

The report doesn’t foresee common lending (“euro bonds”) and only alludes to a “euro area-wide fiscal stabilisation function” in case national budgets are “overwhelmed.” The “five presidents” call their proposal for future eurozone governance a “roadmap that is ambitious yet pragmatic,” sketching out several stages to deepen the union. In a first “deepening by doing” stage, the EU would “build on existing instruments and make the best possible use of the existing Treaties” to enforce the eurozone’s fiscal rules. The second stage, which potentially could mean changes to the EU treaties that would cause difficult discussions about transferring more powers to the EU, is not supposed to start until 2017, the report says. A “genuine Fiscal Union” requires more joint decision-making on fiscal policy, the report says.

While not every aspect of each country’s spending and tax policies will be overseen by Brussels, “some decisions will increasingly need to be made collectively while ensuring democratic accountability and legitimacy,” report says. It calls for a “future euro area treasury“ that “could be the place for such collective decision-making.”

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“..the EU’s political and economic apparatus has openly demonstrated its harmfulness, incompetence and rapacity.”

The Three Victories Of The Greek Government (Jacques Sapir)

Whatever the outcome of the Eurogroup to be held on June 22, it is now clear that the Greek government – improperly called “government of the radical left” or “government of SYRIZA,” but in reality a government union (and the fact that this union was made with the sovereigntist party ANEL is significant) – has won spectacular successes. These successes show that Greece, where the people have regained their dignity, is the one European country where the example set by its government is now showing the way forward. But, and this is most important, this government – in the fight it has led against what is euphemistically called the “institutions”, ie mainly the political-economic apparatus of the EU, the Eurogroup, the ECB – has shown that the “Emperor has no cIothes.” 

The entire structure, complex and lacking in transparency of this politico-economic apparatus was challenged to respond to a political demand, and it has been unable to do so. The image of the EU has been fundamentally altered. Whatever kind of meeting next Monday, if it results in a failure or a surrender of Germany and “austéritaire” or even, which we can not exclude, in the defeat of the Greek government, the EU’s political and economic apparatus has openly demonstrated its harmfulness, incompetence and rapacity. The peoples of the European countries now know who is their worst enemy. The Greek government, in the course of the negotiations which started at the end of January, was faced with the inflexible position of these “institutions”.  But this inflexibility has reflected more a tragic lack of strategy, and the pursuit of conflicting objectives, than real will. 

Indeed, it was well understood that these “institutions” had no intention of yielding on the principle of Euro-austerity, an austerity policy at European level set up under the pretext of “saving the euro”. Therefore, they have refused the pIea of the Greek government whose proposals were reasonable, as many economists have stressed. The proposals made by these “institutions” have been described as the economic equivalent of the invasion of Iraq in 2003 by a columnist who is not listed on the left of the political spectrum. We must understand this as a terrible admission of failure. A position was publicly defended by the representatives of the EU which was in no way based in reality, with the soIe defense for this being a narrow ideology. These representatives were incapable of evoIving their positions and trapped themselves in false arguments, in the same way that the US government chained itself to the issue of weapons of mass destruction attributed to Saddam Hussein.

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The one thing they can agree on, but also the one thing neither acts on. Curious.

Greece and Germany Agree the Euro Can’t Work (Crook)

Ahead of Monday’s European Union summit, the only thing you can rule out is a happy ending. Whatever happens at the leaders’ meeting – even if a deal of some sort emerges – the EU has suffered lasting and perhaps irreparable damage. The available choices run from bad to terrible. The costs to Greece and to the EU of a default followed by Greece’s ejection from the euro system could be huge. But even if the worst doesn’t happen, Europe has suffered a total breakdown of trust and goodwill. That can’t easily be undone – and it’s a dagger pointed at the heart of the entire project. Two things, I believe, will strike historians as they look back on this collapse of European solidarity. The first is that the principals were able to draw such a poisonous dispute out of such an easily solvable problem.

The second helps to explain why that was possible: Greece and its partners fell out thanks to a delusion they have in common — the idea that sharing a currency can leave fiscal sovereignty intact. On the eve of the summit, the economic distance between Greece and its creditors is small. Differences over fiscal targets have narrowed down to timing — what happens next year rather than the year after — and fractions of a%age point of gross domestic product. There’s even tacit agreement that further debt relief will be needed as part of a successor bailout program, though the creditors won’t discuss the details until the current program is completed. That’s a procedural rather than substantive issue, and it simply shouldn’t matter.

The problem is that the creditors don’t trust Alexis Tsipras and his Syriza ministers to hit the targets they might sign up to. The creditors don’t even trust them to try. They want firm commitments to specific policy changes – tax increases and new retirement rules to cut pension spending – that Tsipras has promised not to accept. Again, the revenue these policies would generate is small in relation to the fiscal adjustment Greece has already achieved and to the forecasting errors involved in all such calculations. It isn’t the numbers that separate the two sides. Greece and the creditors are standing on principle, and oddly enough it’s essentially the same principle — that of sovereignty.

Greece has had enough of being dictated to by the rest of the EU. Of course, its government wants debt relief and a milder profile of fiscal adjustment – and that’s justified, because without them the Greek economy will recover too slowly, if at all. But more than debt relief and softer fiscal targets, Greece wants to be back in charge of its own policy. Its years under the creditors’ supervision have been terrible. Being force-fed any more of their medicine is what the country rejected when it voted for Syriza.

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Lamont was instrumental in keeping Britain out of the eurozone.

The Euro Was Doomed From The Start (Norman Lamont)

Next week will be a momentous one for Europe, with a string of crucial meetings including the summit at which the PM will table his renegotiation demands. We may be focused on our renegotiation but it is Greece which will dominate. For some time it has looked as though the Greek drama must reach its final denouement. But the Greeks have become highly skilled at managing to push back deadlines ever further into the future. Whether Greece leaves the euro or stays in, a decision surely cannot be delayed much longer. So what will this mean for the EU? I had the privilege of negotiating Britain’s opt-out from the then new European single currency in 1991. My abiding memory is how clear it was that the euro had nothing to do with economics and was a political project with a dubious rationale.

Some representatives of other countries were openly sceptical, but their political masters were firmly in control. The creation of the euro has been an error of historic dimensions and done great harm to the EU, which in its first 40 years had brought economic prosperity to the citizens of the Continent. Then the less well-off countries benefited from the lowering of tariffs and the increase in internal trade. After the creation of the euro, however, economic growth slowed markedly. Poorer countries fared worse than the more prosperous countries, like Germany, which benefited from the new, weaker currency. The Greek crisis epitomises the complete mess that Europe has made of the single currency.

Greece should never have been admitted in the first place, though it was not the only country – Belgium and Italy were two others – that didn’t meet the strict criteria for membership. From the beginning, the rules put in place for the euro, relating to bail-outs, monetary financing and deficit levels, have been ignored. Europe claims to be a rule-based organisation. But however else the eurozone is run, it is not run strictly according to its own rules.

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Nice graphs! Let’s hope author Whitehouse understands this was not a mistake, but a plan. If Greece had restructured in 2010, the banks would have been on the hook. By waiting 2 years, most could be transferred to taxpayers.

If Greece Defaults, Europe’s Taxpayers Lose (Bloomberg)

The European creditors embroiled in a last-ditch effort to come to terms with Greece face a dilemma: If they can’t prevent a default, their taxpayers stand to lose a lot of money. Ever since the region’s sovereign-debt crisis first flared in 2010, European nations have been stepping in for Greece’s private creditors – largely German and French banks – by lending the country the money to pay them off. Thanks to this bailout, banks and investors have much less at stake than before. Here, for example, are the exposures of countries’ banks to Greece’s government, companies and financial institutions at the end of 2014, compared to the end of 2009:

On the flip side, European governments – and Germany in particular – have become the largest holders of Greece’s €313 billion in sovereign debt, through an alphabet soup of entities that are ultimately backed by taxpayers. Beyond that, as of April, the European Central Bank had lent the Bank of Greece about €115 billion to replace money being pulled out of the country – credit that can turn into losses for the ECB’s remaining shareholders if Greece leaves the euro. Here’s a breakdown of those exposures by country:

The lesson is that in a sovereign debt crisis, dithering can be costly. If European countries had pushed Greece to restructure its private debts back in 2010 (instead of waiting until 2012) and recapitalized banks that were in too deep, the whole region probably could have come out of the crisis much more quickly. As it stands, five years later, Greece and its creditors are back at the negotiating table, with more than 300 billion euros in taxpayer money hanging in the balance.

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Lofty ideals.

Why On Earth Is Greece In The EU? (Angelos)

Europe is a Greek word. After Greece applied to join the European Community in 1975, Konstantinos Karamanlis, the country’s prime minister, often emphasized this point to his European counterparts. The implication was clear: Greece, the font of Europe’s civilization, naturally belonged in the European club. As Karamanlis later put it, “the Greek spirit contributed the idea of Freedom, Truth and Beauty” to European culture. Some had their doubts about whether Greece belonged in the European club, however. The European Commission, in issuing its opinion on Greece’s membership bid, warned that the Greek economy had a weak industrial base, which would limit its capacity to “combine homogeneously” with other member states. German Chancellor Helmut Schmidt worried about Greece’s problematic public administration, and its inability to collect taxes from its wealthiest citizens.

European leaders ultimately found Karamanlis’ argument about Greece’s cultural import persuasive, and it was one reason they set aside their concerns and admitted Greece in 1981. As former French president Valéry Giscard d’Estaing later put it in his memoir, Greece is the “mother of all democracies,” and therefore could not be excluded. Two decades later, when Greece joined the euro, further cementing its place in the European project, it seemed only appropriate that the Greek two-euro coin would depict Europa, the beautiful maiden of Greek mythology who shares the continent’s name. Today, Europa’s place on the coin is in peril as Greece remains dangerously close to a default that could lead to a euro exit. Those considerable problems Europe once overlooked seem to have come back to haunt it.

Even Giscard seems to have had a change of heart. “Greece is basically an Oriental country,” he told the German magazine Der Spiegel in 2012. He was interviewed alongside Schmidt, his old counterpart, who had been more skeptical of Greece’s bid. “You were wiser than me,” Giscard told Schmidt. Europeans’ bipolar view of Greece — that it is both intrinsic to Europe and yet does not belong — has been evident since the nation’s modern founding. When the Greeks revolted against the centuries-long rule of the Ottoman Empire in 1821, European admirers of Ancient Greece rejoiced over the possibility of a resurrected Athens that might once again bestow upon Europe the glories of its classical heyday.

“We are all Greeks,” Shelley wrote, the year the Greek revolution broke out. Europe owed to Greece its civilization, he meant, and was therefore obliged to back the Greek cause. Philhellenic societies across Europe raised money for Greece, and European volunteers traveled there to join the fight.

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“In German: ‘eine Zangengeburt. (A birth that requires a pair of pliers).” The German language is full of very descriptive terms.

EU Welcomes 11th-Hour Greek Proposals In ‘Forceps Delivery’ (Reuters)

The European Union welcomed new proposals from Greek Prime Minister Alexis Tsipras as a “good basis for progress” at talks on Monday where creditors want 11th-hour concessions to haul Athens back from the brink of bankruptcy. EU chief executive Jean-Claude Juncker’s chief-of-staff spoke of a “forceps delivery” as officials worked late into the night to produce a deal ahead of a summit of euro zone leaders in Brussels that they hope can keep Greece in the currency bloc. Giving no detail of a proposal he said was also received by the ECB and IMF, German EU official Martin Selmayr tweeted: “Good basis for progress at … Euro Summit. In German: ‘eine Zangengeburt’.”

After four months of wrangling and with anxious depositors pulling billions of euros out of Greek banks, Tsipras’s leftist government showed a new willingness at the weekend to make concessions that would unlock frozen aid to avert default. It was not immediately clear how far the new proposal yielded to creditors’ demands for additional spending cuts and tax hikes, but the offer was a ray of hope that a last-minute deal may yet be wrangled before Athens runs out of cash. Tsipras spent much of Sunday holed up in a marathon cabinet meeting and discussed the new offer with the leaders of Germany, France and the European Commission by phone. “The prime minister presented the three leaders Greece’s proposal for a mutually beneficial agreement that will give a definitive solution and not a postponement of addressing the problem,” a statement from Tsipras’s office said.

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That’s a first.

EU Commission Gives Guarded Welcome To Greek Plan Before Talks Bloomberg)

A new proposal by Greek Prime Minister Alexis Tsipras drew a rare positive nod from European officials who indicated it could help break a months-long impasse during marathon talks on Monday. The new offer “was a good basis for progress” ahead of Monday’s emergency summit, European Commission spokesman Martin Selmayr, said in a Twitter posting. He also referred in German to the inception of the plan as “birth by forceps.” “These proposals go in the right direction,” European Economic Affairs Commissioner Pierre Moscovici said on Europe 1 radio. Reaching an accord is “very important for Greece, for the Greeks, important for the euro and for Europe. And this time around it’s decisive because we must be aware that the markets are watching.”

The euro gained as much as 0.5% against the dollar in Asian trading and was still trading higher in the early European session. Greek bonds inched higher in early trading Monday, with the yield on notes maturing in 2017 falling 38 basis points to 28.49% at 9:41 a.m. local time. Spanish and Italian government bonds were also trading higher. Before the start of the summit in Brussels, Tsipras will meet with representatives of the countries’ main creditors. He’ll sit down with European Council head Donald Tusk before they’re joined by ECB President Mario Draghi, IMF Managing Director Christine Lagarde, EU Commission President Jean-Claude Juncker and Eurogroup head Jeroen Dijsselbloem, an e-mailed statement from the Greek prime minister’s office said.

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“Democracy cannot be blackmailed, dignity cannot be bargained..”

Greece Creditors Aim To Strike Deal To Include 6-Month Extension (Guardian)

Greece’s creditors are aiming to strike a deal on Monday to stop Athens defaulting on its debt and possibly tumbling out of the euro, by extending its bailout by six months, supplying up to €18bn in rescue funds, and pledging later debt relief for the austerity-battered country. But EU officials, privately disclosing details of the proposed deal, stressed that a breakthrough hinged on the prime minister, Alexis Tsipras, making concessions on fiscal targets, pensions cuts and tax increases that he has resisted since he came to power five months ago. Following a cabinet meeting in Athens, Tsipras is believed to have offered Greece’s creditors concessions on tax and pensions reform. But it was not clear whether the offer went far enough to make a final agreement possible on Monday.

Time is also running out for the Greek banking system, with Reuters reporting on Sunday that €1bn worth of withdrawal orders had been lodged with Greek banks over the weekend – on top of the €4bn that left the Greek banking system last week – and that the ECB is set to discuss extending financial help to those institutions on Monday morning, amid fears that Greek banks will be unable to open on Tuesday. A hectic round of telephone diplomacy took place on Saturday and Sunday between leaders in Athens, Berlin, Paris, and Brussels while technocrats on both sides sought to hammer out the small print of the fiscal arithmetic forming the basis for a last-minute agreement days before Greece’s bailout expires. Greece must pay €1.6bn owed to the International Monetary Fund by Tuesday 30 June.

With time running out, the only way an IMF default could now be avoided was for the ECB to raise the ceiling on the short-term debt or T-bills Athens is allowed to sell, the officials said. This would need to happen by Monday next week. The sources also signalled moves to assuage Tsipras’s key demand – that the creditors need to offer debt relief to Greece. Some form of debt restructuring would be promised to Athens, but it would come with strings attached and not as part of the current bailout package, they said. Yanis Varoufakis, the outspoken Greek finance minister, said Greece’s fate hinged on the German chancellor, Angela Merkel, and told her she faced a stark decision. He added that there would be no agreement that did not include the prospect of debt relief for Greece.

Varoufakis’s spokesman reacted sceptically to suggestions of creditor promises on eventual debt relief, describing the eurozone as “pathological liars”. [..] “Democracy cannot be blackmailed, dignity cannot be bargained,” the party said in a statement on Sunday. “Workers, the unemployed, young people, the Greek people and the rest of the peoples of Europe will send a loud message of resistance to the alleged one-way path of austerity, resistance to the blackmail and scaremongering.”

Read more …

Too late and especially too little.

Pro-Greek Demos In Brussels, Amsterdam Before Crunch Summit (AFP)

Several thousand demonstrators gathered in Brussels on Sunday and several hundred in Amsterdam to plead for solidarity with cash-strapped Greece on the eve of a make-or-break summit with European leaders. Addressing the crowd in Amsterdam, veteran Greek MEP Manolis Glezos urged Athens’ creditors to give the country «one more year» to resolve its debt crisis. “This crisis was caused by the financial sector, not by the Greek people,» said Glezos, a Greek resistance hero against Nazi occupation in World War II, who at 92 years old remains a firebrand politician. “It’s the financial sector that has to pay, not the Greek people,» Glezos said to the loud applause of around 350 demonstrators at Amsterdam’s historic Dam Square. Some of the protesters waved Greek flags while others carried placards saying: «No more EU austerity» and «Stop EU blackmail.”

Demonstrator Sotiris Dialas, 32, told AFP he was «worried about tomorrow» when EU leaders will attend an emergency summit aimed at staving off a Greek default. “I have many friends in Greece and nobody knows what’s going to happen,» he said, draped in a Greek flag. In Brussels, demo organiser Sebastien Franco told Belgian national television channel La Une that austerity was not the answer to Greeces problems. “Austerity is not working, it reduces the income of poor people in the name of reimbursement to creditors… who continue to enrich themselves,» he said. Some 3,500 people turned out for the demo in the Belgian capital, according to Belga news agency, citing police figures. Sunday’s rallies came a day after thousands of people demonstrated in France, Germany and Italy to express solidarity with migrants in Europe and austerity-hit Greece.

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“A U.K. judge has declared the 36-year-old a flight risk and set his bail at $5 million, which is roughly what Sarao says his net worth is. The problem is that his assets are frozen and the judge refuses to accept his family home as surety..”

The Flash-Crash Trader’s Kafkaesque Nightmare (Bloomberg)

How do you prove you don’t have $35 million of ill-gotten gains parked in an offshore account? That’s the dilemma facing Navinder Singh Sarao, known variously as the “Flash-Crash Trader” and the “Hound of Hounslow” and currently residing at Her Majesty’s pleasure in London’s Wandsworth prison. Sarao is accused of contributing to -but not causing, mind you; the Commodity Futures Trading Commission is adamant about that- the so-called “flash crash” that briefly wiped $1 trillion off the value of U.S. stocks on May 6, 2010. You can read the U.S. Justice Department’s case here. He faces a maximum prison term of 20 years for wire fraud, 25 years for commodities fraud, and 10 years for market manipulation and spoofing. The case against Sarao smells strongly of scapegoating.

First, there’s the issue of whether the misdeed he is accused of -“spoofing” the market- is a crime at all, as my colleague Matt Levine has explained at length, including here and here. (Importantly, if a London judge decides it’s not a crime in the U.K. to rapidly trade and cancel $3.5 billion worth of futures contracts in the space of two hours, then Sarao can’t be extradited.) Second, there are the financial machinations that are keeping Sarao in a prison cell, bringing to mind Franz Kafka’s novel, “The Trial.” A U.K. judge has declared the 36-year-old a flight risk and set his bail at $5 million, which is roughly what Sarao says his net worth is. The problem is that his assets are frozen and the judge refuses to accept his family home as surety, meaning Sarao may end up languishing in prison until he is extradited to the U.S. to face his accusers, which could take years.

What’s more, the CFTC is convinced he’s got money hidden away that he hasn’t declared. The regulator says Sarao made more than $40 million of profit, which is “stashed in a variety of offshore accounts and vehicles, as well as other apparently speculative foreign business ventures and are in danger of being concealed and/or dissipated.” That sounds pretty damning – until you get to the financial evidence presented in the U.S. complaint. A change in U.K. tax law created a heavy tax liability under his existing offshore accounts. To mitigate that, he created something called International Guarantee Corporation in 2012 in Anguilla in the British West Indies. (He also had a company, Nav Sarao Milking Markets, which he had set up two years earlier in Nevis.) Sarao seems to have been borrowing money from his company to fund his trading and reinvesting the profits in the company -a perfectly legal structure some of my wealthy friends have used in the past.

Read more …

A country corrupted from head to toe.

China Regulator Official Fired After Husband Suspected of Illegal Trading (WSJ)

China’s stock-market regulator said Saturday it had dismissed the head of the bureau that monitors share issuance after her husband was suspected of illegal stock trading. The China Securities Regulatory Commission said in a statement on its official Weibo microblog account that the official, Li Zhiling, was suspected of breaking the law and had been turned over to police. Her husband’s name wasn’t given. In the statement, the oversight body vowed to “investigate and deal severely with” any irregularities or legal violations without providing further detail. Calls to the regulatory commission went unanswered. The Wall Street Journal has been unable to contact Ms. Li or her husband. According to the website of the business magazine Caixin, Ms. Li was named to her post in 2012 and remained in charge after a reorganization in April 2014 that saw several departments combined.

The oversight agency said Saturday in its Weibo statement that it would redouble efforts to enhance control. “She’s suspected of breaking the law by taking advantage of her position,” it said. “Once we discover such violations, we will immediately take action to punish them. We do not take this lightly.” The commission’s pledge to root out malfeasance came as China’s benchmark Shanghai Composite Index suffered its worst weekly decline in years, with China’s largest market falling 13% over the past five trading sessions, including more than 6% on Friday. This follows a more than doubling of the market over the past year, fueled in part by a sharp increase in margin trading.

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Better wake up. Sell!

Australian Housing Market Facing ‘Bloodbath’ Collapse: Economists (SMH)

The Australian real estate market is in the grip of the biggest housing bubble in the nation’s history and Melbourne will be at the epicentre of an historic “bloodbath” when it bursts, according to two housing economists. Lindsay David and Philip Soos, who have authored books on the overheated housing market, have berated the housing industry and politicians who refuse to acknowledge the existence of a bubble due to a perceived shortage of housing in the major capitals. In a blunt submission to the upcoming parliamentary inquiry into home ownership, the pair claim there is actually an oversupply of housing, just as there was in the United States just before the market collapse that precipitated the global financial crisis.

And the largest oversupply is in Melbourne, where they forecast available homes outstrip demand by 123,000. “Contrary to the analyses of the vested interests, the data clearly establishes Australia is in the midst of the largest housing bubble on record. Policymakers are caught between a rock and a hard place, as implementing needed reforms will likely burst the bubble,” Mr David and Mr Soos state in a submission on behalf of real estate and financial services research house, LF Economics. They believe the current bubble is worse than those in the 1880s, 1920s, mid-1970s and late 1980s. “Australian economic history and recent international events illustrate collapsing housing bubbles can quickly increase the number of unsold properties (stale stock), shattering the pervasive myth of a deleterious dwelling shortage,” they wrote.

“Should this occur alongside rising unemployment and underemployment, reduced aggregate demand and falling net overseas migration, the combination of declining population growth and an oversupply of investment properties would place further downwards pressure on rental prices. Falling housing and rental prices, including sales, would be a doomsday trifecta for investors as they suffer losses in both capital prices and net rental incomes. “This calamitous outcome is especially likely in Melbourne where rents have not increased in real terms since 2010. Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of a staggering boom in real housing prices (178%). Perth is also in a serious predicament.”

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No more safe investments.

Canada’s Giant Pension Funds Are The New Masters Of The Universe (Telegraph)

Since 1790, the United States has suffered 16 banking crises, while Canada, a country that counts the US as its largest trading partner, has experienced none — not even during the Great Depression. How has Canada achieved such an extraordinary feat? Two reasons, according to the IMF: limited exposure to international banking operations, which meant far fewer foreign liabilities than many of their overseas peers and less globally integrated banking systems; and, Canada’s restrictions on mergers of major domestic banks, where rules prohibit a single shareholder – domestic or foreign – from owning more than 20pc of voting rights in a major bank. The World Economic Forum described Canada’s banking system as the most sound in the world, and Mark Carney was appointed Bank of England Governor largely on the basis of his impressive work at the Bank of Canada.

As one Canadian banker once put it, the country’s financial system, unlike those of many other countries, has always been well-capitalised, well-managed, well-diversified and well-regulated. By avoiding the financial crisis, Canada’s experience of recession in the years that followed 2008 was much more forgiving than the rest of the industrialised world, and it led the G-7 pack in terms of growth. As a result, Canada found the confidence to flex its muscles globally. Leading the charge overseas has been a pack of colossal public pension funds taking part in a remarkable spending spree, snapping up prime assets all over the world. According to reports, one of its largest, Borealis Infrastructure, is planning another big swoop.

The infrastructure arm of the $57bn Ontario Municipal Employees Retirement System is eyeing a second bid for Severn Trent, the UK FTSE 100 water company. Borealis made a move for Severn Trent two years ago, but as part of a consortium involving investors from the US and Kuwait. This time it isn’t clear whether the Canadians still have partners or are operating alone – the reports are unconfirmed but a solo bid for a company of Severn Trent’s size would be hugely ambitious – the last time a FTSE 100 constituent was taken private was when KKR swooped on Alliance Boots in 2007 – the largest European buyout so far. Still, if anyone could pull off such a deal, it is probably one of the Canadian pension fund beasts. The country’s four largest funds manage more than $600bn between them and rank among the 40 largest in the world. Only the US can make similar claims.

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How the EU will split.

EU Extends Economic Sanctions Against Russia For 6 Months (RT)

The European Union has extended economic sanctions against Russian for a further six months, an EU official said. This follows the EU’s decision Friday to extend sanctions against Crimea for another year. The decision to extend the sanctions against Russia was announced by the EU Council’s press officer for foreign affairs, Susanne Kiefer. The sanctions are being maintained until January 31, 2016 to ensure the Minsk agreement is implemented, she wrote in her Twitter account. The European Union will review the sanctions regime against Russia in six or seven months, Italian Foreign Minister Paolo Gentiloni told reporters in Luxembourg. Dialogue with Russia, especially on Libya and Syria, is “crucially important” for the EU, Gentiloni added.

Agreement on the extension of sanctions was reached at a meeting of the EU Permanent Representatives Committee on June 17. In March, the EU Summit adopted a political declaration of intent to extend economic sanctions against Russia for another six months. In the document, the lifting of sanctions was linked to the full implementation of the conditions of the Minsk agreement, for the period up until the end of the year. EU sanctions against Russia include restrictions on lending to major Russian state-owned banks, as well as defense and oil companies. In addition, Brussels imposed restrictions on the supply of weapons and military equipment to Russia as well as military technology, dual-use technologies, high-tech equipment and technologies for oil production. No sanctions were imposed against Russia’s gas industry.

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Nice exposé.

Ayn Rand Killed The American Dream (Mathieu Ricard)

The billionaire investor and philanthropist George Soros uses the term “free market fundamentalism” to describe the belief that the free market is not only the best but the only way of managing an economic system and preserving civil liberties. “The doctrine of laissez-Faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest,” he writes. If the laissez-faire attitude of an entirely deregulated free market were based on the laws of nature and had some scientific value, if it were anything other than an act of faith pronounced by the champions of ultraliberalism, it would have stood the test of time. But it hasn’t, since its unpredictability and the abuses it has permitted have led to the financial crises with which we are only too familiar.

For Soros, if the doctrine of economic laissez- faire — a term dear to philosopher Ayn Rand — had been submitted to the rigors of scientific and empirical research, it would have been rejected a long time ago. The free market facilitates the creation of businesses; innovation across many fields, for example in new technology, health, the Internet, and renewable energy; and affords undeniable opportunities to young entrepreneurs wishing to start up business activities that will further society. We have also seen that commercial exchange between democratic nations considerably reduces the risk of armed conflict between them. Yet, in the absence of any safeguard, the free market permits a predatory use of financial systems, giving rise to an increase in oligarchies, inequality, exploitation of the poorest producers, and the monetization of several aspects of human life whose value derives from anything other than money.

In his book What Money Can’t Buy: The Moral Limits of Markets, Michael Sandel, one of the United States’ most high-profile philosophers and an adviser to President Obama, says that neo-liberal economists understand the price of everything and the value of nothing. In 1997, he ruffled a lot of feathers when he questioned the morality of the Kyoto Protocol on global warming, the agreement that removed the moral stigma attached to environmentally harmful activities by simply introducing the concept of buying the “right to pollute.” In his view, China and the United States are the least receptive countries to his outspoken objections to free market fundamentalism: “In other parts of east Asia, Europe and the UK, and India and Brazil, it goes without arguing that there are moral limits to markets, and the question is where to locate them.”

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They’re not that secret…

Behind the Scenes With the Pope’s Secret Science Committee (Bloomberg)

Several dozen of the world’s most prominent scientists sprang from their seats and left the Vatican hall where they were holding a conference on the environment in May 2014. They were bound for a meet-and-greet with Pope Francis at the modest Vatican hotel where he lives, the Domus Sanctae Marthae. Among the horde was Veerabhadran Ramanathan, a climate scientist at the Scripps Institution of Oceanography. Since 2004, he has also been a member of a 400-year-old collective, one that operates as the pope’s eyes and ears on the natural world: the Pontifical Academy of Sciences. He had a message for Pope Francis. Only it was too long The academy’s chancellor, Archbishop Marcelo Sánchez Sorondo, suggested to Ramanathan that he condense his thoughts to just two sentences — and deliver them to Francis in Spanish.

Ramanathan, who speaks no Spanish, spent the balance of the eight-minute jaunt committing the words to memory. He got it down with moments to spare. The phrases vanished as soon as he caught a glimpse of Pope Francis himself. The pope has that effect on people. Ramanathan, who is Hindu, reassembled his message in time, and in English. No pressure. All he had to do was sum up more than a century of thought and research that in the past two decades has been validated repeatedly by climate scientists globally. “We are concerned about climate change,” he told Francis. “The poorest 3 billion people are going to suffer the worst consequences. Ramanathan is one of many scientists and other advisers who have, over the last several decades, conveyed the urgency of climate change to the Vatican.

Now, Francis is responding. On Thursday the Vatican will release an encyclical letter, essentially a teaching document for bishops, on climate change and poverty. It draws on and elevates the utterances and writings of previous popes, particularly John Paul II and Benedict XVI. Yesterday, the Italian magazine L’Espresso published an unauthorized draft of the letter, called “Laudato Sii” or “Praised Be.” “Worth noting is the weakness of the international political response” to environmental decay, Francis writes, according to a Bloomberg translation of the draft. Political leaders bow too readily to technology and finance, he writes, and the results are apparent in their failure to protect natural systems: “There are too many special interests, and economic interest very easily comes to prevail over the common good and to manipulate information so that its plans are not hurt.”

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“The model does not account for the reality that people will react to escalating crises by changing behavior..” How useful is it then?

UK Scientific Model Flags Risk Of Civilisation’s Collapse By 2040 (Nafeez Ahmed)

New scientific models supported by the British government’s Foreign Office show that if we don’t change course, in less than three decades industrial civilisation will essentially collapse due to catastrophic food shortages, triggered by a combination of climate change, water scarcity, energy crisis, and political instability. Before you panic, the good news is that the scientists behind the model don’t believe it’s predictive. The model does not account for the reality that people will react to escalating crises by changing behavior and policies. But even so, it’s a sobering wake-up call, which shows that business-as-usual guarantees the end-of-the-world-as-we-know-it: our current way of life is not sustainable.

The new models are being developed at Anglia Ruskin University’s Global Sustainability Institute (GSI), through a project called the ‘Global Resource Observatory’ (GRO). The GRO is chiefly funded by the Dawe Charitable Trust, but its partners include the British government’s Foreign & Commonwealth Office (FCO); British bank, Lloyds of London; the Aldersgate Group, the environment coalition of leaders from business, politics and civil society; the Institute and Faculty of Actuaries; Africa Development Bank, Asian Development Bank, and the University of Wisconsin. This week, Lloyds released a report for the insurance industry assessing the risk of a near-term “acute disruption to the global food supply.” Research for the project was led by Anglia Ruskin University’s GSI, and based on its GRO modelling initiative.

The report explores the scenario of a near-term global food supply disruption, considered plausible on the basis of past events, especially in relation to future climate trends. The global food system, the authors find, is “under chronic pressure to meet an ever-rising demand, and its vulnerability to acute disruptions is compounded by factors such as climate change, water stress, ongoing globalisation and heightening political instability.” Lloyd’s scenario analysis shows that food production across the planet could be significantly undermined due to a combination of just three catastrophic weather events, leading to shortfalls in the production of staple crops, and ensuing price spikes. In the scenario, which is “set in the near future,” wheat, maize and soybean prices “increase to quadruple the levels seen around 2000,” while rice prices increase by 500%.

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May 062015
 
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Jack Delano Foggy night in New Bedford, Massachusetts 1941

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)
US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)
3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)
One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)
California’s Drought Could Upend America’s Entire Food System (ThinkProgress)
Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)
Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)
It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)
Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)
Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)
Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)
Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)
Greece To Finalise Airports Deal ‘Immediately’ (Reuters)
Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet
China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)
CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)
Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)
Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

“..given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.”

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)

Retail appetite for risk may be drying up, if last week’s unsettling action in the sexy social-media corner of the market is any indication. Sure, Friday ended with a strong push for the major indexes, but that didn’t erase the sting of a stretch that saw 20% post-result drops for Twitter, LinkedIn and Yelp. Broad market bellwethers they ain’t, of course. That doesn’t, however, mean this double-digit blip should be shrugged off like a wayward Pacquiao punch. When the frothy names get rocked, market mood tends to change. It’s too early to draw any ghastly conclusions, but given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.

The flip side is that dip-buyers over the past few years have generally pounced when their faves wobble. This is also something to keep an eye on as the week pushes forward. A rebound, and it’s business as usual. Further weakness, and it’s beware the unravel. At this point, there’s no bounce in the making for that social-media trio ahead of the bell. And the rest of the market is poised to open in the red, with the must-watch jobs report due at the end of the week. Big-picture, those fretting about the potential for a tech bubble might want to gird against what’s about to happen to the American Dream. Again. The “smart money” is signaling trouble ahead in housing.

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Recession looming. Remind me, in what quarter was the growth 5%?

US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)

After shrinking notably in Feb, March’s US Trade deficit exploded. Against expectations of a $41.7bn deficit, the US generated a $51.4bn deficit – the worst since Oct 2008 and the biggest miss on record. Exports rose just $1.6bn while imports soared $17.1bn with the goods deficit with China soaring from $27.3bn to $37.8bn in March. Ironically, just as the “harsh winter” was found to lead to a GDP boost due to a surge in utility spending, so the West Coast port strike which was blamed for the GDP drop, was actually benefiting the US economy as it lead to a plunge in imports. In March, however, the pipeline was cleared, and US imports from China soared by over $10 billion to $38 billion. End result: prepare for upcoming Q1 GDP downgrades into negative territory, which with a Q2 GDP of 0.8% (per the Atlanta Fed) means the US is this close to a technical recession.

The increase in imports of goods mainly reflected increases in consumer goods ($9.0 billion), in capital goods ($4.0 billion), and in automotive vehicles, parts, and engines ($2.7 billion). A decrease occurred in petroleum and products ($1.1 billion). The goods deficit with China increased from $27.3 billion in February to $37.8 billion in March. From the report: The U.S. monthly international trade deficit increased in March 2015 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $35.9 billion in February (revised) to $51.4 billion in March, as imports increased more than exports. The previously published February deficit was $35.4 billion. The goods deficit increased $14.9 billion from February to $70.6 billion in March. The services surplus decreased $0.6 billion from February to $19.2 billion in March.

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And that’s just the beginning.

3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)

Growing numbers of workers expect to rely heavily on Social Security as a major source of income in retirement, but almost three-quarters of current retirees are receiving reduced benefits, according to two new reports. According to a recent Gallup survey, 36% of adults who are not yet retired expect Social Security to be a “major source” of retirement income. That figure is roughly 10 percentage points higher than a decade ago and higher than any response in the past 15 years. Of course, the best way to maximize Social Security is to delay claiming benefits until “full retirement age,” which is climbing gradually to 67, or beyond. A person due to receive a benefit of $1,000 at a full retirement age of 66 would receive only $750 at age 62 (the earliest age at which most people can claim benefits) – and $1,320 at age 70.

But that math isn’t stopping many workers from claiming benefits early. Among the 37.9 million Americans receiving Social Security retirement benefits as of December 2013, fully 73% were receiving reduced benefits “because of entitlement prior to full retirement age,” according to a new report from the Social Security Administration. Relatively more women (75.4%) than men (70.3%) received reduced benefits. The findings come at a time when the Social Security program itself is straining to meet demands and when many workers are anxious about the size of their nest eggs. Currently, the Social Security Administration is tapping the interest on the program’s trust funds to pay beneficiaries and, soon, will begin drawing down the assets themselves.

At the moment, the trust fund is scheduled to run out in 2033, after which Social Security recipients would receive about 75% of their benefits. Against that backdrop, a recent Wells Fargo/Gallup survey found that only 28% of non-retired investors are very confident they will have enough savings at the time they decide to retire. An additional 48% are somewhat confident. The latest Gallup survey concludes: “To the degree [workers’] savings are not sufficient to fund their retirement, [they] will have to make up the shortfall somehow. The guaranteed Social Security benefit is an obvious way to do that, if not by also seeking part-time work or scaling back their standard of living considerably.”

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“..disproportionately Black or Hispanic..”

One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)

One in 10 U.S. adults is invisible to much of the American economy because they have no credit report or score, a new report by the Consumer Financial Protection Bureau has found. Those 26 million adults — disproportionately Black or Hispanic — have virtually no chance to borrow money or use credit cards. And another 19 million adults have credit reports so “thin” that they are unscoreable by traditional methods, and also left behind by the credit system. Together, that means 45 million Americans — one in five adults — have no traditional credit score. “Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray.

“A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.” The CFPB found that 188.6 million American adults have credit records that can be scored using traditional models, or 80% of the population. Most of the Americans left behind by traditional scoring methods are young. Over 10 million of the estimated 26 million credit invisibles are younger than 25, the CFPB found.

The findings are consistent with other recent studies about the “credit invisibles.” FICO, which created the most widely-used formula for credit scoring, told The Wall Street Journal last month that 25 million Americans have no credit events on file and an additional 28 million have thin files. VantageScore, which offers an alternative to FICO scores, said last year that 30-35 million Americans don’t have a traditional credit score. Among those with thin files, the CFPB said the group was evenly split between those who have an insufficient credit history and those who lack a recent credit history.

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Much has to shift to other states.

California’s Drought Could Upend America’s Entire Food System (ThinkProgress)

On April 1, California Governor Jerry Brown stood in a field in the Sierra Nevada Mountains, beige grass stretching out across an area that should have been covered with five feet of snow. The Sierra’s snowpack — the frozen well that feeds California’s reservoirs and supplies a third of its water — was just 8% of its yearly average. That’s a historic low for a state that has become accustomed to breaking drought records. In the middle of the snowless field, Brown took an unprecedented step, mandating that urban agencies curtail their water use by 25%, a move that would save some 500 billion gallons of water by February of 2016 — a seemingly huge amount, until you consider that California’s almond industry, for example, uses more than twice that much water annually. Yet Brown’s mandatory cuts did not touch the state’s agriculture industry.

Agriculture requires water, and large-scale agriculture, like that in California, requires large amounts of water. So when Governor Brown came under fire for exempting farmers from the mandatory cuts — farmers use 80% of the state’s available water — he was unmoved. “They’re not watering their lawn or taking long showers,” he told ABC’s “The Week”. “They’re providing most of the fruits and vegetables of America to a significant part of the world.” Almonds get a lot of the attention when it comes to California’s agriculture and water, but the state is responsible for a dizzying diversity of produce. Eaten a salad recently? Odds are the lettuce, carrots, and celery came from California. Have a soft spot for stone fruit? California produces 84% of the country’s fresh peaches and 94% of the country’s fresh plums. It produces 99% of the artichokes grown in the United States, and 94% of the broccoli.

As spring begins to creep in, almost half of asparagus will come from California. “California is running through its water supply because, for complicated historical and climatological reasons, it has taken on the burden of feeding the rest of the country,” Steven Johnson wrote in Medium, pointing out that California’s water problems are actually a national problem — for better or for worse, the trillions of gallons of water California agriculture uses annually is the price we all pay for supermarket produce aisles stocked with fruits and vegetables. Up to this point, feats of engineering and underground aquifers have made the drought somewhat bearable for California’s farmers. But if dry conditions become the new normal, how much longer can — and should — California’s fields feed the country? And if they can no longer do so, what should the rest of the country do?

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MUST SEE! Brilliant exposé.

Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)

In an exclusive interview with Every Investor, Professor Steve Keen from Kingston University has warned that politicians who promote austerity economics are naïve. The economist, who was one of the few who predicted the Great Recession, warned last year that the US and UK economies wouldn’t make a sustainable recovery due to the problem of high levels of private debt – public debt being more a symptom than a cause of this economic malaise. In this interview he gives a detailed explanation as to why the austerity-heavy economic policy of the Conservatives (and the Liberal Democrats), and the austerity-lite version from Lab is naïve and will lead not to economic growth but to economic stagnation.

Indeed, while not endorsing any political party, he does acknowledge that the economic policies of the SNP and Greens make more sense. This is a video that needs to be watched. It will give you insights that most professional economists appear to lack. (Hence, their evident surprise at news that the UK and US are slowing down). It should also encourage investors to be in ‘risk-off’ mode, which seems very sensible given likely market volatility that will follow the election and the grave economic news that we can expect this year.

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Germany violates a lot of EU agreements. It could face huge fines.

Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)

Germany’s current account surplus is out of control. The European Commission’s Spring forecasts show that it will smash all previous records this year, reaching a modern-era high of 7.9pc of GDP. It will still be 7.7pc in 2016. Vague assurances that the surplus would fall over time have once again come to nothing. The country is now the biggest single violator of the eurozone stability rules. It would face punitive sanctions if EU treaty law was enforced. Brussels told Germany to do its “homework” a year ago, but recoiled from taking any action. We will see if Jean-Claude Juncker’s commission does any better this time. If not, cynics might justifiably conclude that big countries play by their own rules in Europe, and that Germany can defy all rules. The EMU punishment machinery is highly political, in any case.

The story of the EMU debt crisis is that the authorities persistently enforce a creditor agenda rather than macro-economic welfare (an entirely different matter). This is the fifth consecutive year that Germany’s surplus has been above 6pc of GDP. The EU’s Macroeconomic Imbalance Procedure states that the Commission should launch infringement proceedings if this occurs for three years in a row, unless there is a clear reason not to. There are few extenuating circumstances in this case. Germany’s surplus is not caused by a one-off shock. The surplus remains huge even if adjusted for lower energy import costs. It is a chronic structural abuse, rendering monetary union unworkable over time, and is surely more dangerous for eurozone unity than anything going on in Greece. “The European Commission should stop pulling its punches: Germany should be fined,” said Simon Tilford, from the Centre for European Reform.

“Their surplus should be treated in the same way as the southern deficits were treated earlier, as a comparable threat to eurozone stability. What is so worrying is that the surplus would normally be falling rapidly at this stage of the economic cycle,” he said. Germany’s jobless rate is at a post-Reunification low of 4.7pc. It should therefore be enjoying a surge of consumption. This it is not happening because the rebalancing mechanism is jammed. What this shows is the EMU remains fundamentally out of kilter, and doomed to lurch from crisis to crisis even if there is a recovery. Any rebound in southern Europe will lead to the same build-up in intra-EMU trade imbalances, and therefore in the same offsetting capital flows, vendor-debt financing, and asset bubbles that led to the EMU crisis in the first place.

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Major strikes for more pay.

It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)

European travelers have contended for weeks with the possibility that Greece’s dwindling finances might lead to empty ATMs. They should have concerned themselves instead with Germany. While cash machines in Athens are still operating without any trouble, striking couriers in Berlin this week stopped filling ATMs, leading to a crunch for those trying to make withdrawals. And the open-ended labor dispute with a local security company means there’s no end in sight. “That all depends on how the company reacts,” said Andreas Splanemann, a spokesman for the Ver.di union representing the security personnel. “There are now a lot of cash machines that are empty.” Berlin’s strike is the latest in a series of walkouts that have riled a nation more accustomed to mocking the labor strife which has so often beset neighboring France.

A strike by train drivers that began Tuesday is paralyzing travel and clogging highways throughout Germany. That action follows a March walkout by pilots at Deutsche Lufthansa AG that led to flight cancellations for 220,000 people. “It’s really annoying, especially if you’re pressed for time,” Batgerel Militz, a Berlin student, said as she unsuccessfully tried to withdraw cash at two banks. She finally got lucky at the third – just in time to catch her delayed train. “Probably because of the train strike,” she said with a laugh. Joking aside, Germany is seeking to curb the influence of smaller unions by drafting a law that would limit companies’ labor representation to one union per group of employees. The measure is currently winding its way through the Bundestag, the country’s lower house of parliament.

In the case of the passenger train strike, which is set to run through May 10, the walkout was called by the GDL union, which represents 19,000 train drivers, switch-yard engineers and conductors. The GDL is far smaller than the larger EVG, which has about 213,000 members staffing Germany’s rail network. The Lufthansa strike crippled travel because it was called by pilots. “They can strike more readily if they do so with solely their own goals in mind,” said Stefan Heinz, an academic specializing in labor politics at Berlin’s Free University. “They can get more out of it for their group.” While Germans still strike less than the French, those who’ve walked out recently in Germany often hold posts that have a wider ripple effect across society.

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“The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them..”

Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)

Greece’s government has blasted its creditors for holding back progress on bailout talks, laying the blame squarely on differences between the European Union and the International Monetary Fund. Racheting up the pressure on the two bodies, the anti-austerity Syriza government said conflicting strategies and opposing views were not only impeding negotiations but injecting “a high level of danger” into the talks at a time when the country’s finances had hit rock bottom. “Serious disagreements and contradictions between the IMF and European Union are creating obstacles in the negotiations and a high level of danger,” said a senior government source. The official added that both lenders were digging in their heels on divergent issues, effectively enforcing “red lines everywhere”.

While the IMF was refusing to compromise on labour deregulation and pension reform but was relaxed on fiscal demands, the EU was insistent that primary surplus targets be met while being much more conciliatory about structural changes. The official insisted: “In such circumstances, it is impossible to have a compromise. The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them”. Speaking exclusively to the Guardian, the Greek health minister, Panagiotis Kouroumblis, said creditors were constantly moving the goalposts. “They are not only implacable, the feeling that they give us is that they are impossible to satisfy,” he said. “They ask for 10 things to be done and then come back the next day and ask for another 10 more. As much as we would like, that’s not going to lead to compromise.”

The warnings came as the European commission slashed its forecast for Greece’s growth rate this year, predicting the economy would expand by a mere 0.5%, compared with the 2.5% it had projected barely three months ago. The downgrade was the clearest sign yet that the stalled negotiations have thrown the country, last year believed to be emerging from its worst recession on record, back into reverse. Talks aimed at unlocking desperately needed rescue funds – €7.2bn (£5.3bn) from the last bailout has been held up as both sides haggle over reforms – have been beset by problems since the far-left Syriza leader Alexis Tsipras assumed power in January. The EC said Greece’s economic recovery had been hit by the political tumult that had plagued the country in the four months since the previous government was forced to call snap polls. “In the light of the persistent uncertainty, a downward revision has been unavoidable,” said the EU’s monetary affairs commissioner, Pierre Moscovici.

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“The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met..”

Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)

Greece blamed international creditors for the failure to achieve a breakthrough in bailout talks, saying a deal won’t be possible until they agree on a common set of demands. A Greek official said that the European Commission and the IMF are confronting the country with too many red lines and need to better coordinate their message. Greek bonds and stocks tumbled on Tuesday as optimism that an interim deal was close gave way to angst that the country isn’t moving fast enough to guarantee the continued flow of bank liquidity and bailout funds. Euro region finance ministers are next scheduled to meet on May 11, with Germany’s Wolfgang Schaeuble saying earlier he’s “skeptical” that an agreement can be reached by then.

Greece’s new line of argument focuses on what it says are divisions among the international creditors. The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met, said the official, who spoke on condition of anonymity because the talks are confidential. The commission is also refusing to consider a debt write down, he said. Greece is sending mixed signals about just how much money it has left. While officials say they’re confident of making payments to the IMF this week and next, one policy maker signaled last month that the country may struggle to keep its finances afloat beyond the end of this month.

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What’s the use of threatening Greece even further?

Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)

Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday. The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government. The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme”. His statement reflects resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions. Mr Moscovici’s comments come as the IMF has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply. Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately.

Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference. “Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.” Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated.

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“..if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.”

Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)

Negotiations with lenders over the future of Greece’s €240 billion bailout have been ongoing since Greece’s leftwing government came to power. And although Greece was given a four-month extension to its bailout in February, little has been achieved in terms of reforms. As talks dragged on into April, euro zone officials began to moan openly about Greece’s stance – and Varoufakis himself as he was in charge of negotiations — and the fact it was, as the Eurogroup’s President Jeroen Djisselbloem put it “wasting time.”The lack of progress raised concerns that Greece’s might not be able to find the money for upcoming loan repayments and whether it could avoid default and a potentially very messy exit from the euro zone.

Talk also turned to whether Varoufakis could lose his job as a way for show Greece to show its European partners that it was serious about reforms – serious enough to sack its own champion finmin. Instead, he was sidelined last Tuesday, keeping his job as finance minister but taken away from the frontline during negotiations – a move that one euro zone official said had helped negotiations to progress.Getting no love from either his euro zone counterparts or his own government, Varoufakis was verbally attacked and threatened with violence by anarchists in the Exarchia area of Athens, a neighborhood popular with anti-government protesters.

Varoufakis came out uscathed from the scuffle, but whether he can survive the blows and bruises of life in Greece’s tumultuous political landscape is yet to be seen. Just this weekend , the Greek finance ministry was denying reports that Varoufakis had offered to resign. Whether the reports are true or not, if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.

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Risky for Syriza, it threatens to go against its election promises.

Greece To Finalise Airports Deal ‘Immediately’ (Reuters)

Greece will finalise “immediately” a €1.2 billion deal with Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port, a senior privatisations official said on Tuesday. The asset sales had been in doubt after Prime Minister Alexis Tsipras’ leftist-led government took power in January but may be the latest concessions offered by his government to try to secure more bailout cash from international creditors. The Greek finance, shipping and economy ministries involved in the sales declined to comment. “The issue of regional airports will be concluded immediately,” the official at Greece’s privatisations agency HRADF told Reuters on condition of anonymity, noting that an announcement could be expected by May 15.

Tsipras’ government is trying to renegotiate a 240-billion-euro bailout and has said it would review the sales, though various Greek officials have offered contradictory statements on the fate of both the airports and the Piraeus deals. Fraport and Greek energy firm Copelouzos had agreed with the privatisation agency in 2014 that it would run the airports in tourist destinations including Corfu, striking one of Greece’s biggest privatisation deals since the start of the debt crisis. Under the terms of the deal, the German-Greek group was expected to spend about €330 million in the first four years to upgrade the airports, that will be leased for 40 years.

On Tuesday, the privatisations official said Athens would invite shortlisted investors to submit by July binding offers for a 51% stake in Greece’s biggest port with the option to raise their stake to 67% over five years. “We will reopen the process in the coming days,” the official said. China’s Cosco Group, which already manages two of Piraeus port’s cargo piers, is among five preferred bidders. Greek port workers are due to stage a 24-hour strike on Thursday to protest against the privatisations of Piraeus and Thessaloniki ports, saying the government has rolled back on its pre-election pledges.

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“I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet

The rollback of financial regulation is stalled. Income inequality is a campaign issue. Americans are still angry about the financial crisis. Things aren’t shaping up the way the big banks expected, and an important reason is one laser-focused senator from Massachusetts.

Let’s assume that when he woke up on the morning of Dec. 12, Michael Corbat, CEO of Citigroup, was feeling pretty good. The day before, the House of Representatives had passed a bill that would save his bank and others lots of money and headaches. The trouble was, Elizabeth Warren, the senior senator from Massachusetts, was getting ready to speak on the Senate floor. She had his bank on her mind. What Warren wanted to talk about was an item tucked into page 615 of a 1,603-page spending package: the repeal of section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Known as the swaps push-out rule, section 716 required banks to set up separate subsidiaries, not backed by the government, to trade certain derivatives.

If the rule stood, it would generate huge administrative costs for the big banks. Citi had fought hard on this. The bank’s lobbyists had worked on lawmakers and helped draft language for the repeal. Getting it into a big spending package Congress was sure to pass was a coup. In the ongoing wars between Wall Street and the forces of government regulation, this repeal was a big win for the banks. “Today I am coming to the floor not to talk about Democrats or Republicans,” Warren began her speech, “but to talk about a third group that also wields tremendous power in Washington—Citigroup.” With that, Warren turned Citi into exactly the kind of villain so many people suspect lurks in the backrooms of the Capitol.

In one particularly striking moment, she connected nine top government officials—including Treasury Secretary Jacob J. Lew—directly to the megabank. She invoked Teddy Roosevelt, her favorite trust-busting president, who took on the big corporations of his day. “There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect,” Warren continued. “So let me say this to anyone who is listening at Citi. I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

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Will Beijing take on all debt to the shadow system?

China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)

China’s central bank is considering lending to policy banks through a new tool so they can buy bonds issued by local governments, a person close to the regulator says. The loans would have a maturity of at least 10 years, the source said. Other details of how this would work remain unclear, but the tool will be unlike anything the bank has used before, he said. “It will be a new monetary tool the world has never seen,” the person said. “The format does not matter, and all possible means could be taken.” He said the regulator will use the new instrument to provide China Development Bank (CDB) and perhaps other policy banks with capital so they can buy bonds that local governments have issued.

The Ministry of Finance has said local governments can issue 1 trillion yuan ($160 billion) worth of bonds this year to repay their old debts — in other words allowing them to swap existing debts, which are mostly bank loans, for bonds that have longer maturities and cost less. The problem is that commercial banks are not interested in the bonds. Banks are “not at all interested” in buying such bonds because “their yields are too low and there is no liquidity,” a source from a joint-stock bank said. He said the bank he works for bought some local-government bonds only because its branches want to maintain a good relationship with local governments.

Xu Hanfei at Guotai Junan Securities said the interest rates of bank loans to local-government financing platforms — commercial vehicles that local governments used to circumvent a previous restriction that barred them from borrowing directly — are usually around 8%, and so are the yields of these platforms’ bonds. With local-government bonds, he said, the yields are usually halved. “Commercial banks do not want to buy local-government bonds … because the yields can hardly cover their capital cost,” a source from a bank’s financial-market division said. “There are many more assets that promise much better returns than local-government bonds. Why bother exchanging them for the bonds?”

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The war crazies.

CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)

Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S. This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.” Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.” The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy.

Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble. The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example: “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

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Kiev left Eastern Ukraine alone, no cash in ATMs, no pensions payments, no benefit payments. There’s only one alternative.

Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)

As a wobbly cease-fire keeps eastern Ukraine’s warring factions apart, Russia’s ruble is conquering new territory across the breakaway republics. In Donetsk, the conflict zone’s biggest city, supermarkets have opened ruble-only checkout counters to serve the fighters in camouflage lining up along pensioners. Bus and tram tickets come with a conversion from Ukraine’s hryvnia to the Russian currency. Gas-station workers are paid in rubles because that’s what their rebel customers use to fuel their armored jeeps. “There are no problems in shops, they all accept rubles,” said Natalya, 36, a hairdresser buying groceries for her parents, who declined to give her surname for fear of reprisals. “They don’t always have small change, but they can give you chewing gum or a cigarette lighter instead.”

The ruble’s creeping advance shows how the troubled regions are slipping further from the government’s grasp, even as a peace accord brokered by Germany, France and Russia calls for the nation of more than 40 million to remain whole. Separatist officials haven’t yet made their currency plans clear. The precedent in ex-Soviet countries from Georgia to Moldova shows that similar shifts can help entrench pro-Russian insurgents. “The increasing use of the ruble is yet another sign Russia’s going to keep de facto sovereignty over the territory it and the separatists control,” said Cliff Kupchan, Eurasia Group chairman in New York. “If the sides implement the latest truce, which is unlikely, perhaps both the hryvnia and the ruble will be used. If not, it will be all ruble.”

Ukraine is the one place in the world where the ruble’s 46% plunge against the dollar in 2014 didn’t make it any less attractive, considering a 48% drop in the hryvnia, the world’s worst performer for the last two years. The Russian currency has staged a partial recovery in 2015, with April its best month on record. It advanced 0.4% on Tuesday. And the ruble has been welcomed in Donetsk, where most shops and businesses now accept it. Hryvnias are no longer available from cash machines in rebel-held territory, forcing locals to go to other parts of Ukraine to withdraw money.

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There’s not nearly enough appreciation in the west for what Russia suffered, and achieved, in WWII. Russia mourned more dead than all other countries combined.

Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

In October 1941 Hitler launched an offensive on the Russian capital codenamed Operation Typhoon. It was supposed to crush Moscow in a so-called double pincer – two simultaneous attacks from the north and south. The Soviet troops vigorously fought back, disrupting Hitler’s plans for a quick operation. The Battle of Moscow eventually lasted through January 1942 and ended in the first battlefield defeat of the Nazi army. The battle was one of the bloodiest and lethal struggles in world history and was later considered to be a decisive turning point in the fight against Nazi troops. Memories of that battle are still fresh for WW2 veteran Gennady Drozdov, 98, who was assigned to the 4th Guards Mortar Regiment at that time.

“During the Battle of Moscow, in December 1941, there was a raid on the hinterlands of the Nazi German troops. We came so close we could see the position of their troops, their machine gun, in particular, and its operators,” Drozdov told RT. “On our command the division fired a salvo, missiles flew over our heads – we completed our task and returned to the base.” The weather seemed to be on the side of the Soviet army, as autumn brought heavy rains, and then winter caught the Nazis unawares with exceptionally freezing temperatures. While the epic battle raged on, Moscow residents had to “survive all the horrors of war: hunger, cold, devastation, loss of family and the loved ones,” according to Rimma Grachyova, who was seven years old when the war broke out. “Most frightening of all was the bombing – daily bombings that continued incessantly,” the woman recalls.

“At first we would shelter in the “Park Kultury” underground station that was not far from our house. Then our family decided that if it was our fate to die we would die together and we wouldn’t run from it. There were five kids in our family.” “We helped the front as much as we could. We’d collect scrap metal from courtyards. I’d knit socks and mittens together with grown-ups, as I knew how. We wrote letters too. We also sang for the wounded in hospitals,” the 80-year-old witness said, sharing her childhood experience. Almost one million Soviet soldiers died during the defense and counter-offensive operations, which included the construction of three defensive belts in the Moscow region, as well as deployment of reserve armies. The outcome of the Battle of Moscow saw German troops pushed back nearly 200 km from the capital, becoming the first-ever blow to the Wehrmacht’s reputation as an invincible army.

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Mar 192015
 
 March 19, 2015  Posted by at 7:50 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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NPC Pittsburg Water Heater Co., Washington DC 1920

Why The American Dream Is Unraveling, In 4 Charts (MarketWatch)
Federal Reserve Ends Era Of Historically Low Interest Rates (Guardian)
Fed Indicates Rate Hikes Coming, But Not In April (CNBC)
Fed Opens Door For Rate Hike Even As It Downgrades Economic Outlook (Reuters)
Fed To Markets: No More Promises (Hilsenrath)
Bond Traders to Yellen: You’re Wrong on Oil’s Impact on Economy (Bloomberg)
IMF Considers Greece Its Most Unhelpful Client Ever (Bloomberg)
ECB Prepares For Grexit, Anticipates 95% Loss On Greek Debt (Zero Hedge)
Tsipras Demands EU Stop ‘Unilateral Actions’ As Tensions Flare (Reuters)
Greece Defies EC With Anti-Austerity Law (BBC)
Merkel to Seek Accommodation With Tsipras in Talks (Bloomberg)
At Least 350 People Arrested In Protest At New ECB HQ in Frankfurt (Guardian)
Welcome To London, Where Homes Earn More Than Their Owners (Guardian)
Russia Urges France, Germany To Act On Ukraine’s ‘Glaring Breach’ of Minsk (RT)
The Rage of the Cultural Elites (Yu Shan at Orlov)
Middle East OPEC Oil Rig Count Jumps 14% (EM)
US Oil Inventory Expands Faster Than Expected (Bloomberg)
Renewable Energy: The Most Expensive Policy Disaster in Modern UK History (EM)
Bacteria Programmed To Find Tumours (BBC)

Take heed.

Why The American Dream Is Unraveling, In 4 Charts (MarketWatch)

In “The Adventures of Huckleberry Finn,” the young protagonist gripes about his adopted mother’s efforts to “sivilize” him — particularly at the dinner table, where he observes that each dish is cooked and served separately. “In a barrel of odds and ends it is different;” Finn says. “Things get mixed up, and the juice kind of swaps around, and the things go better.” I thought about that line while reading Robert Putnam’s “Our Kids,” a jarring study of the growing opportunity gap between rich and poor children. America would like to think of itself as Huck’s “barrel of odds and ends,” a kind of democratic stew. But, as Putnam shows, our society is increasingly more like his adopted mother’s meal, with each dish cooked separately and cordoned off into different compartments on the dinner plate.

The upper-middle-class families Putnam profiles separate themselves into affluent suburbs, with separate public schools and social spheres from those of their poorer counterparts. As a result, the poorer children not only face greater hardships, but they also lack good models of what is possible. They are effectively cut off from opportunity. “The most important thing about the experience of being young and poor in America is that these kids are really isolated, and really don’t have close ties with anybody,” Putnam told MarketWatch. “They are completely clueless about the kinds of skills and savvy and connections needed to get ahead.” His analysis shows how family structure, parenting practices, schooling and health habits correlate with diminishing opportunities for poorer children. For instance:

Children of poorer, less educated parents are far more likely to grow up in single-parent homes.

Due to lack of support networks and good models, perhaps, the highest-scoring poor children are less likely to graduate college than the lowest-scoring wealthy children.

Putnam does not fault the wealthier parents for seeking the best for their children. “Perhaps unexpectedly, this is a book without upper-class villains,” he notes. But he makes the case that it’s not only in the moral interest of wealthier families to help improve the prospects of poorer children but also in their own economic interest. The U.S. economy would get a major boost if the opportunity gap were closed, he says. We cannot continue to live in our own bubbles, or compartments on a plate, without consequences, he suggests.

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Conclusion no. 1.

Federal Reserve Ends Era Of Historically Low Interest Rates (Guardian)

The US Federal Reserve called time on an era of historically low interest rates on Wednesday. In its latest statement on the health of the US economy the central bank moved away from a pledge to be “patient” before deciding to raise interest rates. Economists expect that interest rates could now rise by the end of the summer, the first rise in more than six years. Stock markets, which had fallen ahead of the release, rose on the news as the Fed continued to signal a cautious approach to raising rates. “Just because we have removed the word patient from the statement does not mean we are going to be impatient,” Janet Yellen, chair of the Federal Reserve, said at a press conference.

The Fed said rates would not rise before “further improvement in the labor market” and only when it was confident inflation was moving back to its 2% objective over the medium term. “The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run,” the Fed said in its statement.

The Fed cut its benchmark short-term interest rate to zero on 16 December 2008 and it has remained close to zero ever since. The rock bottom rate policy was part of a massive stimulus programme aimed at revitalising the economy in the wake of the worst recession since the Great Depression. The Fed’s decision comes after months of impressive growth in the jobs market. Last month US unemployment rate fell to 5.5%, down from a peak of 10% in October 2009. Last year was the best year for job growth since the late 1990s.

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No. 2.

Fed Indicates Rate Hikes Coming, But Not In April (CNBC)

The Federal Reserve fired its first warning shot Wednesday that it is going to start hiking interest rates–sometime. As the global investment community focused its attention on the U.S. central bank, the Fed Open Market Committee lived up to expectations: It dropped the word “patient” from its post-meeting statement, an indication, subtle though it may be, that the era of zero interest rates is about to end. But the mostly dovish statement made little fanfare over eliminating the word, and in fact stated specifically that “an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting,” a phrase missing from previous communiques.

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” the statement said. Stocks quick turned positive, with the Dow up 100 points 5 minutes after the statement was issued. Yields on US 10-year Treasurys fell below 2% for the first time since Feb. 25. The dollar weakened.

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No. 3.

Fed Opens Door For Rate Hike Even As It Downgrades Economic Outlook (Reuters)

The Federal Reserve on Wednesday moved a step closer to a much anticipated first rate hike since 2006 by removing “patient” from its language, although markets bet on a September hike after it downgraded the expected pace of growth and inflation. Stock markets rallied after the Fed statement, while the U.S. 10-year Treasury yield dipped below 2% for the first time since March 2 and the euro rose against the dollar on the more dovish forecasts that appeared to argue against a June move. “This was largely what was expected, though some may have been fearing a more hawkish Fed, and that explains the rally we’re seeing right now, that it didn’t state a precise time for raising rates,” said John Carey at Pioneer Investment.

In its statement following a two-day meeting, the Fed’s policy-setting committee repeated its view that job market conditions had improved. While the statement put a June rate increase on the table it also allowed the Fed enough flexibility to move later in the year, stressing that any decision would depend on incoming data. “The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium-term,” the Fed said in its statement. The Fed said a rate increase remained “unlikely” at its April meeting and said its change in rate guidance did not mean the central bank has decided on the timing of a rate hike. It had previously said it would be patient in considering when to bring monetary policy back to normal.

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The Fed’s bullhorn speaks.

Fed To Markets: No More Promises (Hilsenrath)

The Federal Reserve is about to inject uncertainty back into financial markets after spending years trying to calm investors’ nerves with explicit assurances that interest rates would remain low. Ahead of their policy meeting that ends Wednesday, Fed officials have signaled they want to drop the latest iteration in a succession of low-rate promises—a line in their policy statement pledging to be “patient” before deciding to raise rates. The move could be a test for investors. In theory, less-clear-cut interest-rate guidance from the Fed should lead to more volatility in financial markets. That’s because investors will be left less certain about a key variable in every asset-valuation model: the cost of funds.

Christine Lagarde, managing director of the IMF, warned Tuesday that markets could be heading for a repeat of the 2013 “taper tantrum,” in which stocks fell and interest rates rose around the world as the Fed considered winding down its “quantitative easing” bond-buying program. “I am afraid this may not be a one-off episode,” she said of 2013 in a speech at India’s central bank. “The timing of interest-rate liftoff and the pace of subsequent rate increase can still surprise markets.” The central bank for years has been using carefully chosen words about the likely level and direction of short-term rates as policy tool, hoping promises about the future will influence other borrowing costs today, such as the level of long-term rates on mortgages or car loans.

The approach has become particularly important since December 2008, when the Fed pushed its benchmark federal funds rate to zero amid the financial crisis and began promising it would stay there for an extended period. With the labor market healing and inflation expected to move back toward their 2% target, Fed officials hope they’re ready to move on, at least rhetorically. They see this as progress—before they believed the economy was so weak they shouldn’t signal rate increases were anywhere on the horizon. In addition to signaling that the Fed expects to consider raising rates later this year, the move away from a patience promise is part of the central bank’s broader effort to avoid pinning itself down in the future. Fed officials themselves are uncertain about when to start the process of raising rates and want flexibility to respond to new information about how the economy is evolving.

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And then of course oil prices surge after the Fed thingy today.

Bond Traders to Yellen: You’re Wrong on Oil’s Impact on Economy (Bloomberg)

Janet Yellen has dismissed plunging oil values as a fleeting shock to the economy. Bond traders disagree. The latest slump in oil – including a 2% drop Wednesday – has investors dumping their junk-rated energy securities and slashing their predictions for inflation. Energy-related high-yield bonds have tumbled 3.4% this month and dollar-denominated notes that are hedged against accelerating prices have declined 2.1%. Debt investors aren’t waiting to find out whether Federal Reserve Chair Yellen will change her view that the impact from lower oil prices on inflation will be transitory. The 15% plunge in crude prices this month has them repricing the economic outlook years out and paring investments that are most vulnerable to further losses.

“Credit markets have been very keenly focused on oil prices,” said George Bory at Wells Fargo, in a Bloomberg Television interview Tuesday. The ballooning amount of energy-related debt has led investors “to use the credit markets as almost a proxy trade on oil.” The U.S. market for energy-related high-yield bonds has swelled to $201 billion from $65.6 billion at the end of 2007, according to Bank of America Merrill Lynch index data. Bets on oil bonds suggest an ugly outlook for pipeline and exploration companies – and all of the people they employ — after they borrowed record amounts over the past several years.

The extra yield, or spread, investors demand to own the typical junk-rated energy security has more than doubled since June to 7.44%age points above government debt, the Bank of America Merrill Lynch index shows. For context, the spread has averaged 4.82 points since the inception of the data in 1996. Bond markets are suggesting the oil collapse will also spill over into the broader economy. Investors have been selling inflation-linked bonds, causing the $1 trillion U.S. market for the debt to lose $23 billion of market value this month, according to Pimco index data.

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Why make a comment like this, and at this point in time? What kind of game is that?

IMF Considers Greece Its Most Unhelpful Client Ever (Bloomberg)

International Monetary Fund officials told their euro-area colleagues that Greece is the most unhelpful country the organization has dealt with in its 70-year history, according to two people familiar with the talks. In a short and bad-tempered conference call on Tuesday, officials from the IMF, the ECB and the EC complained that Greek officials aren’t adhering to a bailout extension deal reached in February or cooperating with creditors, said the people, who asked not to be identified because the call was private. The IMF’s press office had no immediate comment on the discussions.

German finance officials said trying to persuade the Greek government to draw up a rigorous economic policy program is like riding a dead horse, the people said, while the IMF team said Greece’s attitude to its official creditors was unacceptable. Concern is growing among officials that the recalcitrance of Prime Minister Alexis Tsipras’s government may end up forcing Greece out of the euro, as the cash-strapped country refuses to take the action needed to trigger more financial support. Tsipras is pinning his hopes for a breakthrough on a meeting with ECB President Mario Draghi, German Chancellor Angela Merkel, French President Francois Hollande and European Commission head Jean-Claude Juncker this week in Brussels.

“These are difficult talks,” Merkel told her parliamentary group Tuesday about the negotiations with Greece, according to two participants. She said that the outcome of the talks is completely open, according to the two. The Greek government is seeking a political deal at a EU summit starting Thursday to unlock funds from the country’s €240 billion bailout package, government spokesman Gabriel Sakellaridis said. “After one-and-a-half months of contact, we believe that for there to be a political solution, it is important for the euro-area’s big countries to weigh in,” Sakellaridis said. “We’re not downplaying technical discussions, but we want there to be a framework, and for that we’re asking for a political solution.” Sakellaridis didn’t respond to a request for comment on the Tuesday conference call.

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“while the ECB is making it very clear what happens next in the case of a “Graccident”, it has yet to provide an explanation how it will resolve the billions of Greek debt held on its own balance sheet which are about to be “marked-to-default.”

ECB Prepares For Grexit, Anticipates 95% Loss On Greek Debt (Zero Hedge)

..when the ECB “leaks” that it is modelling a Grexit, something Draghi lied about over and over in 2012 and directly in our face too, take it seriously, because it is time to start planning about what happens on “the day after.” And incidentally to all those curious what the fair value of peripheral European bonds is excluding ECB backstops, the ECB has a handy back of the envelope calculation: a 95% loss. Which also is the punchline, because while the ECB is making it very clear what happens next in the case of a “Graccident”, it has yet to provide an explanation how it will resolve the billions of Greek debt held on its own balance sheet which are about to be “marked-to-default”… … and on which it is prohibited from suffering a loss, or else Draghi will have to fabricate even more on the run rules about how the ECB balance sheet is loss-proof… expect in this case, or that, or the other. From Manager Magazin, google-translated:

The European Central Bank (ECB) is preparing for a possible Greek exit from the euro zone. In internal model calculations, the central bank has already calculated the consequences of different scenarios on the prices of Greek government bonds. Fernando González Miranda, head of risk analysis of the ECB, assumed for his model calculations three different developments of the Greek crisis, the magazine reports. These variants have also been presented to our colleagues from the Bundesbank few days ago. Under this method, the value of Greek government debt – currently around €320 billion – in the event of a sudden, “accident-like” Farewell to the Greeks from the Euro-zone (“Graccident”) shrink to around 5% of the principal amount.

If it were the Greek Government, however, to complete the withdrawal on the basis of ordered negotiations (“Grexit”), the ECB expects a residual value of government bonds by nearly 14%. And should it even create the country to negotiate a recent haircut, without having to give up the single currency, the government securities could keep at least a quarter of its original value. A central bankers feared compared with manager magazin especially the “Graccident”. The risk is high that the Greek government members “lose track and suddenly unable to settle their bills.” In such a case, the rating agencies Greece would classify as necessarily insolvent, with the result that the central bank should have stopped emergency loans.

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“If they’re doing it to frighten us, the answer is: we will not be frightened..”

Tsipras Demands EU Stop ‘Unilateral Actions’ As Tensions Flare (Reuters)

Greek Prime Minister Alexis Tsipras lambasted European partners on Wednesday for criticizing a new anti-poverty law hours before it is voted on, saying it was the euro zone rather than Athens that must stop “unilateral actions” and keep its word. Tsipras’s impassioned speech to parliament as it prepared to vote on his government’s first bill marked the latest escalation in a war of words between Athens and its creditors that has raised the risk of a Greek bankruptcy and euro zone exit. European Council President Donald Tusk called a meeting on Greece for Thursday evening at Tsipras’ request on the sidelines of an EU summit with the leaders of Germany, France, the ECB, the EC and the chairman of euro zone finance ministers.

The leftist Greek leader is pressing for a political decision to break Greece’s cash crunch, while the creditors have insisted Athens must first start implementing previously agreed economic reforms and hold detailed talks on its financial plans. Tensions over Greek flip-flopping on the terms of a bailout extension agreed last month flared again after an EU official wrote to Athens urging more talks with lenders on the bill before the vote. The letter told Tsipras’s leftist government to hold further talks with the EU on the bill or risk “proceeding unilaterally” against the terms of a Feb. 20 accord that extended the bailout and staved off a Greek banking collapse. European Economics Commissioner Pierre Moscovici denied the EU was trying to stop Athens from passing the law but that the official had been correct to remind the Greek government to consult with lenders first.

“The European Union as a whole wants Greece in the eurozone,” Moscovici said, but added that the February deal must be respected. “Greece must stay in the euro zone… but at these conditions.” An indignant Tsipras defended the so-called “humanitarian crisis” law – which offers food stamps and free electricity to the poor – as the first bill in five years drawn up in Athens rather than ordered by EU technocrats. “If they’re doing it to frighten us, the answer is: we will not be frightened,” Tsipras told parliament. “The Greek government is determined to stick to the Feb. 20 agreement. However, we demand the same from our partners. Let them stop unilateral actions, respecting the agreement they signed.”

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Over a measly €200 million, strictly targeted at poverty relief, the EU is going to be difficult?

Greece Defies EC With Anti-Austerity Law (BBC)

The Greek parliament has approved a package of social measures, despite warnings from the European Commission against “proceeding unilaterally”. In parliament, the Greek Prime Minister Alexis Tsipras defended what he called a “humanitarian crisis” law. The law – the first to be introduced since Mr Tsipras’s party won elections in January – offers food stamps and free electricity to the very poorest. The total amount of assistance is worth about €200m. It is the kind of anti-austerity measure that Mr Tsipras had promised before his election victory in January. In a 30-minute speech he defended the legislation, which he described as the first bill in five years to be drawn up in Athens, rather than ordered by EU technocrats. He also criticised a leaked letter from an EU official, which had advised Greece to consult with its international creditors before proceeding with the legislation.

“If they’re doing it to frighten us, the answer is: we will not be frightened,” Mr Tsipras told parliament. “What else can one say to those who have the audacity to say that dealing with a humanitarian crisis is a ‘unilateral action’?” The new law, and Mr Tsipras’s defiant speech, come ahead of an expected meeting with Angela Merkel and Francois Hollande on the sidelines of an EU summit in Brussels this week. Greece is still in dispute with its international creditors about the terms of an extension to its huge financial bailout, with the eurozone demanding that Athens commit to spending cuts to release further loans. Relations between Brussels and Athens have soured dramatically. With Greece currently shut out of debt markets, concerns have been expressed that the country could soon run out of money.

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At the very least too high-handed. She should have invited Tsipras on day one.

Merkel to Seek Accommodation With Tsipras in Talks (Bloomberg)

German Chancellor Angela Merkel will seek accommodation in talks with Greek Prime Minister Alexis Tsipras to calm the increasingly combative rhetoric between the nations and regain control over efforts to keep Greece in the euro. Merkel, as leader of the biggest contributor to Greece’s €240 billion bailout, is willing to go a long way to find a compromise, said a German official with knowledge of her thinking, who asked not to be identified discussing internal strategy. Nonetheless, she’ll tell Tsipras during meetings in Brussels and Berlin over the next five days that she expects Greece to play by the rules, the person said. After weeks of sparring between Greece and Germany, Merkel is pursuing the talks now to try and get the discussion back on track, the official said.

Any suggestion that she will deliver an ultimatum to Tsipras is complete nonsense and propagated by those who want to inflame the standoff, the official said. Merkel sees the meetings with Tsipras as more of a chance to get to know him, and doesn’t plan to directly negotiate the details of Greece’s fate, which she sees as a matter between Athens and its creditors, the official said. Her room for leeway on Greece is in any case limited by resistance from within her own parliamentary group, according to the official. Merkel is convinced that now is the “right time to hold extensive talks,” Steffen Seibert, her chief spokesman, said Wednesday in Berlin. “The talks will be about the situation between Greece and the other members of the euro area and how a way forward can be achieved.”

Tsipras is pinning his hopes to reach a breakthrough on a meeting he’s requested with Merkel, ECB President Mario Draghi, French President Francois Hollande and European Commission head Jean-Claude Juncker on the sidelines of a European Union summit that starts Thursday. Merkel has also invited Tsipras to Berlin March 23 for one-on-one talks. The two nations have been locked in acrimonious exchanges in recent weeks over the continuation of Greece’s austerity program and whether Germany should pay additional reparations for the Nazi occupation of the country during World War II. “Many Greek people falsely believe that what is at stake is not Greece’s very problematic economic performance and the European Union’s mismanagement of the euro-zone crisis but a dispute between Greece and Germany,” said Dimitris Sotiropoulos at the University of Athens.

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The ECB is occupied by idiots.

At Least 350 People Arrested In Protest At New ECB HQ in Frankfurt (Guardian)

Dozens of police officers have been injured and hundreds of people detained after anti-austerity protesters clashed with riot police near the new headquarters of the ECB in Frankfurt. At least seven police cars were set on fire as streets were barricaded at the “Blockupy” demonstration to mark the opening of the €1.3 billion building on Wednesday morning. Some protesters said they were injured when police used pepper spray. At least 350 people were held by police, according to the German news site Deutsche Welle. Police used water cannon to try to make a path through the mass of black-clad protesters to the entrance of the building. The new building was targeted because the ECB has come to symbolise spending cuts and market reforms of the kind being forced on Greece.

The German justice minister, Heiko Maas, said that “everyone has the right to criticise institutions like the ECB. But pure rioting goes beyond all limits in the battle for political opinion.” Hundreds of officers ringed the ECB. The inauguration ceremony took place as planned, with the ECB president, Mario Draghi, thanking guests “for being here despite the difficult situation outside”. He said the new headquarters for the currency union’s central bank was “a symbol of what Europe can achieve together”. “European unity is being strained,” Draghi said, according to an advance text quoted by Reuters. “People are going through very difficult times. There are some, like many of the protesters outside today, who believe the problem is that Europe is doing too little. “But the euro area is not a political union of the sort where some countries permanently pay for others.”

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“Average prices there have gone up nearly £200,000 over the past two years..”

Welcome To London, Where Homes Earn More Than Their Owners (Guardian)

Homes have earned more than their homeowners for the past two years in one in five local authorities – almost exclusively in London and the south-east – according to analysis by Halifax. The London borough of Hammersmith and Fulham has seen the biggest explosion in house prices relative to pay, Halifax said. Average prices there have gone up nearly £200,000 over the past two years, while households in the area have had median earnings totalling £56,698 over the same period. Hammersmith is one of just two areas where houses have earned more than their occupants for the past 10 years. The other is Hackney, another London borough.

The figures reveal a deep north-south divide. Of the 73 local authority areas where homes have earned more than their owners over the past two years, 68 are in London, the south-east or the east. The Cotswolds and the Leicestershire areas of Melton and Harborough were the best “performers” outside of the south. Islington in London tops the table for house prices versus earnings over five years. Householders in the borough typically earned £135,457 in the five years from 2010-2014. Meanwhile, the average home in Islington soared in price by £258,498.

Every one of the 23 local authority areas where homes outstripped homeowner incomes over the past five years were in London and the south-east. Outside of the capital, Elmbridge and Mole Valley in Surrey, and South Buckinghamshire are areas where homes have earned more than their owners. Halifax acknowledged that the huge house price gains have benefitted some, but left others struggling. “This is good news for some homeowners. At the same time, it is challenging news for many looking to buy their first home in such areas, with prices being pushed out of range for many young people,” said Halifax housing economist Martin Ellis.

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“Immediately after the withdrawal of heavy weapons, a dialogue on the modalities of the election in the respective regions of Donetsk and Lugansk was supposed to begin,” Lavrov said. The modality of the elections, in line with the Minsk agreements, must be in accord with Donetsk and Lugansk. Nobody even tried to do it.”

Russia Urges France, Germany To Act On Ukraine’s ‘Glaring Breach’ of Minsk (RT)

Moscow has called on Berlin and Paris to take action in regards to Kiev’s non-compliance with the Minsk peace agreement, in what Russia’s Foreign Minister has called a “glaring breach of the first steps of the Minsk package.” “I don’t know how the political process will unfold now,” Lavrov told a news conference on Wednesday. “Yesterday I sent special notes to the foreign ministers of France and Germany, and drew their attention to the glaring breach of the first steps of the political part of the Minsk package by Kiev. I urged them to take a trilateral joint demarche in regards to our Ukrainian colleagues in order to encourage them to implement agreements which they signed, and what was supported by the leaders of Germany, France, Russia and Ukraine.”

Kiev didn’t even take an effort in an attempt to start dialogue with the self-proclaimed republics of Donetsk and Lugansk on the modalities of elections there, Lavrov said after negotiations with his Gabonese counterpart, Emmanuel Issoze-Ngondet. At the OSCE Permanent Council session on Thursday Russia is set to raise the question of the violation of the Minsk agreements when adopting laws on Donbass, RIA Novosti reported. “Immediately after the withdrawal of heavy weapons, a dialogue on the modalities of the election in the respective regions of Donetsk and Lugansk was supposed to begin,” Lavrov said. The modality of the elections, in line with the Minsk agreements, must be in accord with Donetsk and Lugansk. Nobody even tried to do it.” On Tuesday, the Ukrainian parliament, the Verkhovna Rada, failed to introduce a special order of government in Donbass until the elections are held there in accordance with Ukrainian laws.

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“..sharing the need for frenzied spectacles of mass humiliation and destruction.”

The Rage of the Cultural Elites (Yu Shan at Orlov)

A certain unhappy incident happened to my aunt in the summer of 1966. The Cultural Revolution a political movement initiated by Mao Zedong was beginning to engulf the country. That same year many American college students were protesting against the Vietnam War and Leonid Brezhnev was keeping his seat warm as the General Secretary of CPSU, having replaced the somewhat volatile Nikita Khrushchev two years earlier. My aunt was then a freshman studying literature at Fudan University in Shanghai. It so happened that my aunt, then a sensitive and somewhat dreamy young woman, had stubbornly and haplessly clung to certain musical tastes which at that time in China came to be regarded as politically incorrect, being said, in the trendy ideological jargon of that time, to reflect decadent bourgeois revisionist aesthetics.

To wit, my aunt had kept in her record collection a rendition of The Urals Mountain-Ash, a Russian folk song in which a young girl meets two nice boys under a mountain-ash tree and must choose between them, performed by the National Choir of the Ukrainian Soviet Socialist Republic. It was an old-style LP spinning at 78 RPM. It had a red emblem in the middle emblazoned with CCCP. One of my aunt’s roommates, who probably had always resented her for one reason or another, found out about it and reported her to the authorities. For this rather serious infraction, student members of the Red Guard made my aunt publicly smash her beloved record, then kneel upon the fragments and recite an apology to Chairman Mao while fellow-students threw trash at her face shouting Down with Soviet revisionists!

This generation of Chinese young people, who once donned Red Guard uniforms, beat people up around the country and smashed various cultural artifacts, is now mostly living on government pensions or earning meagre profits from home businesses, but some have prospered and can be found among the upper crust of contemporary China’s business, cultural, and political elites. This episode came to my mind when in the summer of 2014 I came upon video clips of Ukrainian student activists storming university classrooms in mid-lecture and ordering everyone to stand up and sing the Ukrainian national anthem, then forcing the professor to apologize for the lecture not being adequately patriotic. There were also ghastly spectacles of Enemies of the People (guilty only of having served under the overthrown president Yanukovich) being paraded around in trash bins.

In Ukrainian schools, children were made to jump up and down, and told that ‘Whoever doesn’t jump is a Moscal’ (a derogatory term for Russian ). Add to this the destruction of public monuments to World War II and the ridiculous rewriting of history (turns out that, during World War II, Germany liberated Ukraine, but then Russia invaded and occupied Germany!) and a complete picture emerges: the Ukrainian Maidan movement is one of a species of cultural revolution. The new, fashionable term being thrown around is civilizational pivot, but it and the old cultural revolution can be understood as approximate synonyms, sharing the need for frenzied spectacles of mass humiliation and destruction.

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Wow…

Middle East OPEC Oil Rig Count Jumps 14% (EM)

As if to rub salt in the wounds of the US shale industry, Middle East OPEC oil rig count has jumped by 19 rigs to 155 units in February 2015 setting a new rig count record for the region. Since 2005 the supergiant oil fields of the region developed symptoms of mortality and increased drilling has been required to combat natural production declines in order to maintain production at static levels. More on international and US rig counts below the fold.

Figure 1 Middle East OPEC oil rig count for Saudi Arabia, UAE, Kuwait and Qatar. Baker Hughes is not reporting data for Iran and activity in Iraq is affected by ongoing conflict. While the rest of the world is heading for the drilling exits these four Middle East countries are preparing to expand market share. All data from Baker Hughes.

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Count me not surprised.

US Oil Inventory Expands Faster Than Expected (Bloomberg)

America has raised the roof again. That’s what the roofs of oil storage tanks do – they rise and fall depending on the volume of oil inside. And America’s oil in storage just hit a new record after surging for the 10th consecutive week. Stockpiles rose 9.6 million barrels, or 2.1%, to 458.5 million barrels last week, the EIA reported today. Analysts had expected an increase of 4.4 million barrels. The amount of oil the U.S. is cranking out also rose, for the sixth consecutive week, to a rate of 9.42 million barrels a day. Oil investors have been glued to the levels of storage tanks, which have been climbing steadily since the oil-price crash started last year. American stockpiles are more than 25% above their five-year average.

Inventories aren’t likely to max out, but even the possibility of that happening is adding pressure to an oversupplied oil market. U.S. inventories will probably continue to rise for the next few months, as refineries conduct seasonal maintenance and investors hold out for higher prices, according to Bloomberg Intelligence. In addition to traditional storage in tanks represented in today’s numbers, drillers have left thousands of nearly finished wells untapped in what’s become de facto storage, sometimes known as the fracklog. Prices are low, storage is filling up, and oil-drilling rigs are being idled at an unprecedented rate. But the U.S. oil boom hasn’t slowed yet.

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Make of it what you will…

Renewable Energy: The Most Expensive Policy Disaster in Modern UK History (EM)

In a new report ‘Central Planning with Market Features: How Renewable Subsidies Destroyed The UK Electricity Market’, published by the Centre for Policy Studies on Wednesday 18 March, Rupert Darwall shows that recent energy policy represents the biggest expansion of state power since the nationalisations of the 1940s and 1950s – and is on course to be the most expensive domestic policy disaster in modern British history.

Darwall shows that:
• The electricity sector is being transformed into a vast, ramshackle Public Private Partnership, an outcome that promises the worst of both worlds – state control of investment funded by high cost private sector capital, with energy companies being set up as the fall guys to take the rap for higher electricity bills.
• Post-privatisation gains in productivity are now being reversed as a result of plunging labour productivity. By 2013, three quarters of the productivity gains recorded between 1994 and 2004 had been lost.
• Competition between electricity suppliers is an expensive sideshow (which Ofgem estimated cost £730m in 2008) if it does not drive competition between generators and market investment in the most efficient generating technologies.
• Government policies aim to hide the full costs of intermittent renewables, which as a result are systematically understated. In addition to their higher plant-level costs, renewables require massive amounts of extra generating capacity to provide cover for intermittent generation when the wind doesn’t blow and the sun doesn’t shine.
• Highly subsidised wind and solar capacity flooding the market with near random amounts of zero marginal cost electricity wrecks the economics of conventional power stations. It is therefore impossible to integrate large amounts of intermittent renewables into a private sector system and still expect it to function as such.
• As a result, the State has stepped in with a patchwork of interventions to support prices. Because revenues are dependent on continued government interventions, private investors end up having to price and manage political risk, imparting a further upwards twist to electricity bills.
• Without renewables, the UK market would require 22GW of new capacity to replace old coal and nuclear. With renewables, 50GW is required, i.e. 28GW more to deal with the intermittency problem. Then there are extra grid costs to connect both remote onshore wind farms (£8 billion) and even more costly offshore capacity (£15 billion) – a near trebling of grid costs.

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And dogs..

Bacteria Programmed To Find Tumours (BBC)

Bacteria programmed to spot tumours in the liver have been shown off at the Ted (Technology, Entertainment and Design) conference in Vancouver. Tal Danino, a researcher at MIT, described how he programmed the bacteria with genetic code. The system could be developed to identify other cancers, he said. So far the research has only been tested on mice. The results will be published in Science Translational Medicine. The mice are fed pre-programmed probiotic bacteria – a similar type to that found in some health-promoting yogurts. The bacteria produce enzymes when they encounter a tumour which will, in turn, change the colour of urine. So far, the system has proved accurate at detecting liver cancer. “Liver cancer is hard to detect, and there really is a need for new technology to help spot it,” Mr Danino told the BBC ahead of his talk.

Worldwide, liver was the second most lethal cancer in 2012, resulting in 745,000 deaths, according to the World Health Organization (WHO). Mr Danino was the first of 21 Ted fellows – young researchers engaged in cutting-edge work – chosen each year by the non-profit Ted organisation. Their five-minute speeches kick off the conference which, for the second year running, is being hosted in Canada. “There are more bacteria in the body than there are stars in the galaxy,” Mr Danino told the Ted audience. “It is a fascinating universe in our body and we can now program bacteria like we program computers.” But the intersection between biology and computer is still at a “very early stage”, he said. “We don’t know what the exact impact will be,” he told the BBC.

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